HERITAGE FINANCIAL ANNOUNCES THIRD QUARTER 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND OF $0.23 PER SHARE

About this update from Heritage Financial Corporation

Third Quarter 2024 Highlights Net income was $11.4 million , or $0.33 per diluted share, compared to $14.2 million , or $0.41 per diluted share, for the second quarter of 2024. Results include a pre-tax loss on sale of securities of $6.9 million , or $0.16 per diluted share on an after-tax basis. Loans receivable increased $146.9 million , or 3.2% (12.9% annualized). Deposits increased $192.8 million , or 3.5% (13.9% annualized). Non-interest bearing deposits increased $82.9 million , or 5.2% (20.6% annualized). Net interest margin was 3.33%, compared to 3.29% for the second quarter of 2024. Cost of total deposits was 1.42%, compared to 1.34% for the second quarter of 2024. Noninterest expense to average total assets was 2.18%, compared to 2.21% for the second quarter of 2024. Declared a regular cash dividend of $0.23 per share on October 23, 2024 . OLYMPIA, Wash. , Oct. 24, 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 $11.4 million for the third quarter of 2024 compared to $14.2 million for the second quarter of 2024 and $18.2 million for the third quarter of 2023. Diluted earnings per share for the third quarter of 2024 were $0.33 compared to $0.41 for the second quarter of 2024 and $0.51 for the third quarter of 2023. In the third quarter of 2024, the Company incurred a pre-tax loss of $6.9 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which decreased diluted earnings per share by $0.16 for the quarter. The Company sold $78.0 million of investment securities with an estimated weighted average book yield of 1.88%. Proceeds were used to fund higher yielding loan growth for the quarter. Jeff Deuel , Chief Executive Officer of the Company, commented, "We are very pleased with our operating results for the third quarter, which included strong loan and deposit growth, margin expansion, and continued benefits from expense management measures. The increases in average earning assets and net interest margin resulted in an improvement in net interest income of $1.8 million , or 3.6%, from the prior quarter. Although we experienced a charge-off during the quarter related to an owner-occupied commercial real estate loan previously downgraded to Substandard, we believe our overall credit quality remains very strong. We are optimistic that the combination of core balance sheet growth and prudent risk management will continue to benefit our core profitability." Financial Highlights The following table provides financial highlights at the dates and for the periods indicated: As of or for the Quarter Ended September 30 , 2024 June 30 , 2024 September 30 , 2023 (Dollars in thousands, except per share amounts) Net income $ 11,423 $ 14,159 $ 18,219 Pre-tax, pre-provision income(1) $ 15,505 $ 17,263 $ 20,919 Diluted earnings per share $ 0.33 $ 0.41 $ 0.51 Return on average assets(2) 0.63 % 0.80 % 1.00 % Pre-tax, pre-provision return on average assets(1)(2) 0.86 % 0.98 % 1.15 % Return on average common equity(2) 5.30 % 6.75 % 8.80 % Return on average tangible common equity(1)(2) 7.62 % 9.74 % 12.90 % Adjusted return on average tangible common equity(1)(2) 10.42 % 10.74 % 13.62 % Net interest margin(2) 3.33 % 3.29 % 3.47 % Cost of total deposits(2) 1.42 % 1.34 % 0.83 % Efficiency ratio 71.7 % 69.4 % 66.2 % Adjusted efficiency ratio(1) 65.2 % 67.1 % 64.8 % Noninterest expense to average total assets(2) 2.18 % 2.21 % 2.25 % Total assets $ 7,153,363 $ 7,059,857 $ 7,150,588 Loans receivable, net $ 4,628,088 $ 4,481,396 $ 4,219,911 Total deposits $ 5,708,492 $ 5,515,652 $ 5,635,187 Loan to deposit ratio(3) 82.0 % 82.2 % 75.7 % Book value per share $ 25.61 $ 24.66 $ 23.31 Tangible book value per share(1) $ 18.45 $ 17.56 $ 16.25 (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 increased $61.8 million , or 54.3%, to $175.6 million at September 30, 2024 from $113.8 million at June 30, 2024 primarily due to an increase in deposits. Total investment securities decreased $86.4 million , or 5.2%, to $1.57 billion at September 30, 2024 from $1.66 billion at June 30, 2024 . As previously noted, the Company sold $78.0 million of investment securities at a pre-tax loss of $6.9 million as part of its strategic balance sheet repositioning. In addition, there were investment maturities and repayments of $43.3 million during the third quarter of 2024. These impacts were offset partially by a $34.7 million decrease 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: September 30, 2024 June 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 $ 13,054 0.8 % $ 12,474 0.8 % $ 580 4.6 % Municipal securities 61,263 3.9 69,720 4.2 (8,457) (12.1) Residential CMO and MBS(1) 427,048 27.2 446,468 26.9 (19,420) (4.3) Commercial CMO and MBS(1) 328,861 20.9 378,768 22.8 (49,907) (13.2) Corporate obligations 11,706 0.7 11,384 0.7 322 2.8 Other asset-backed securities 10,847 0.7 12,434 0.7 (1,587) (12.8) Total $ 852,779 54.2 % $ 931,248 56.1 % $ (78,469) (8.4) % Investment securities held to maturity, at amortized cost: U.S. government and agency securities $ 151,181 9.6 % $ 151,146 9.1 % $ 35 — % Residential CMO and MBS(1) 249,589 15.9 256,742 15.5 (7,153) (2.8) Commercial CMO and MBS(1) 318,630 20.3 319,454 19.3 (824) (0.3) Total $ 719,400 45.8 % $ 727,342 43.9 % $ (7,942) (1.1) % Total investment securities $ 1,572,179 100.0 % $ 1,658,590 100.0 % $ (86,411) (5.2) % (1) U.S. government agency and government-sponsored enterprise CMO and MBS Loans receivable increased $146.9 million, or 3.2%, to $4.68 billion at September 30, 2024 from $4.53 billion at June 30, 2024 . New loans funded in the third quarter and second quarter of 2024 totaled $176.9 million and $166.7 million , respectively. Loan prepayments decreased slightly during the third quarter of 2024 to $44.8 million , compared to $48.5 million during the prior quarter. Commercial and industrial loans increased $44.6 million , or 5.7%, due primarily to new loan production of $76.0 million during the quarter, offset by pay downs on outstanding balances. Owner-occupied commercial real estate ("CRE") loans increased $33.6 million , or 3.5%, due primarily to new loan production of $41.8 million during the third quarter of 2024 offset partially by pay downs on outstanding balances. Non-owner occupied CRE loans increased $76.0 million , or 4.3%, due primarily to new loan production of $44.2 million during the third quarter of 2024 and advances on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated: September 30, 2024 June 30, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Commercial business: Commercial and industrial $ 824,134 17.6 % $ 779,495 17.2 % $ 44,639 5.7 % Owner-occupied CRE 987,084 21.1 953,518 21.0 33,566 3.5 Non-owner occupied CRE 1,835,609 39.3 1,759,605 38.8 76,004 4.3 Total commercial business 3,646,827 78.0 3,492,618 77.0 154,209 4.4 Residential real estate 408,982 8.7 413,358 9.1 (4,376) (1.1) Real estate construction and land development: Residential 79,325 1.7 80,451 1.8 (1,126) (1.4) Commercial and multifamily 378,322 8.1 378,695 8.4 (373) (0.1) Total real estate construction and landdevelopment 457,647 9.8 459,146 10.2 (1,499) (0.3) Consumer 166,023 3.5 167,493 3.7 (1,470) (0.9) Loans receivable 4,679,479 100.0 % 4,532,615 100.0 % 146,864 3.2 Allowance for credit losses on loans (51,391) (51,219) (172) 0.3 Loans receivable, net $ 4,628,088 $ 4,481,396 $ 146,692 3.3 % Total deposits increased $192.8 million , or 3.5%, to $5.71 billion at September 30, 2024 from $5.52 billion at June 30, 2024 . Noninterest bearing demand deposits increased by $82.9 million , or 5.2%, due to new accounts of $30.0 million and an increase in existing deposit balances primarily to business customers. Money market accounts increased $49.9 million primarily due to new accounts of $47.3 million opened during the quarter. Certificates of deposit increased $62.3 million , or 7.1%, to $945.6 million at September 30, 2024 from $883.2 million at June 30, 2024 , primarily due to new accounts opened during the quarter. Brokered deposits declined by $10 million . The following table summarizes the Company's total deposits at the dates indicated: September 30, 2024 June 30, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $ 1,682,219 29.5 % $ 1,599,367 29.0 % $ 82,852 5.2 % Interest bearing demand deposits 1,489,316 26.1 1,487,670 27.0 1,646 0.1 Money market accounts 1,148,720 20.1 1,098,821 19.9 49,899 4.5 Savings accounts 442,677 7.8 446,583 8.1 (3,906) (0.9) Total non-maturity deposits 4,762,932 83.5 4,632,441 84.0 130,491 2.8 Certificates of deposit 945,560 16.5 883,211 16.0 62,349 7.1 Total deposits $ 5,708,492 100.0 % $ 5,515,652 100.0 % $ 192,840 3.5 % Total borrowings decreased $118.0 million to $382.0 million at September 30, 2024 from $500.0 million at June 30, 2024 due to pay downs during the quarter. All outstanding borrowings mature within one year. Total stockholders' equity increased $24.0 million , or 2.8%, to $874.5 million at September 30, 2024 compared to $850.5 million at June 30, 2024 due primarily to a $27.0 million decrease in other comprehensive loss as a result of changes in market rates and $11.4 million of net income recognized for the quarter, partially offset by $8.0 million in dividends paid to common shareholders and $7.5 million in common stock repurchases. 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 September 30, 2024 . The following table summarizes the capital ratios for the Company at the dates indicated: September 30 , 2024 June 30 , 2024 Stockholders' equity to total assets 12.2 % 12.0 % Tangible common equity to tangible assets (1) 9.1 8.9 Common equity tier 1 capital ratio (2) 12.3 12.6 Leverage ratio (2) 9.9 10.1 Tier 1 capital ratio (2) 12.7 13.0 Total capital ratio (2) 13.6 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 1.10% at September 30, 2024 compared to 1.13% at June 30, 2024 . During the third quarter of 2024, the Company recorded a $2.7 million provision for credit losses on loans, compared to a $1.5 million provision for credit losses on loans during the second quarter of 2024. The company recorded net charge-offs of $2.5 million during the quarter primarily from one owner-occupied CRE loan that was added to nonaccrual loans during the quarter. This loan was rated Substandard at the time of the charge-off and has been managed by our Special Assets Departments since December 2022 . During the third quarter of 2024, the Company recorded a $266,000 reversal of provision for credit losses on unfunded commitments compared to a $202,000 reversal of provision for credit losses on unfunded commitments during the second quarter of 2024. The reversal of provision for credit losses on unfunded commitments during the third quarter of 2024 was due primarily to a decrease in the unfunded exposure on construction loans. The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments, and the related provision for (reversal of) credit losses for the periods indicated: As of or for the Quarter Ended September 30, 2024 June 30, 2024 September 30, 2023 ACL onLoans ACL onUnfunded Total ACL onLoans ACL onUnfunded Total ACL onLoans ACL onUnfunded Total (Dollars in thousands) Balance, beginning ofperiod $ 51,219 $ 774 $ 51,993 $ 49,736 $ 976 $ 50,712 $ 46,408 $ 1,777 $ 48,185 Provision for (reversal of)credit losses 2,705 (266) 2,439 1,470 (202) 1,268 (635) (243) (878) Net recoveries (netcharge-offs) (2,533) — (2,533) 13 — — 13 1,174 — 1,174 Balance, end of period $ 51,391 $ 508 $ 51,899 $ 51,219 $ 774 $ 51,993 $ 46,947 $ 1,534 $ 48,481 Credit Quality The percentage of classified loans to loans receivable decreased to 1.5% at September 30, 2024 , compared to 1.8% at June 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 $5.4 million to $99.1 million at September 30, 2024 , compared to $93.7 million at June 30, 2024 . The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated: September 30, 2024 June 30, 2024 Balance % ofTotal Balance % ofTotal (Dollars in thousands) Risk Rating: Pass $ 4,508,424 96.4 % $ 4,356,425 96.1 % Special Mention 99,078 2.1 93,694 2.1 Substandard 71,977 1.5 82,496 1.8 Total $ 4,679,479 100.0 % $ 4,532,615 100.0 % Nonaccrual loans to loans receivable were 0.09% and 0.08% at September 30, 2024 and June 30, 2024 , respectively. The increase in nonaccrual loans was primarily due to the addition of one owner-occupied CRE loan moving to nonaccrual, a portion of which was charged-off during the quarter. This increase was partially offset by the payoff of two commercial and industrial loans. Changes in nonaccrual loans during the periods indicated were as follows: Quarter Ended September 30 , 2024 June 30 , 2024 September 30 , 2023 (Dollars in thousands) Balance, beginning of period $ 3,826 $ 4,792 $ 4,630 Additions 4,990 549 440 Net principal payments and transfers to accruing status (173) (483) (81) Payoffs (1,832) (769) (1,924) Charge-offs (2,510) (263) — Balance, end of period $ 4,301 $ 3,826 $ 3,065 Liquidity Total liquidity sources available at September 30, 2024 were $2.52 billion . This includes on- and off-balance sheet liquidity. The Company has access to Federal Home Loan Bank ("FHLB") advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at September 30, 2024 represented a coverage ratio of 44.2% of total deposits and 112.6% of estimated uninsured deposits. The following table summarizes the Company's available liquidity: Quarter Ended September 30 , 2024 June 30 , 2024 (Dollars in thousands) On-balance sheet liquidity Cash and cash equivalents $ 175,572 $ 113,757 Unencumbered investment securities available for sale (1) 848,224 926,822 Total on-balance sheet liquidity $ 1,023,796 $ 1,040,579 Off-balance sheet liquidity FRB borrowing availability $ 287,739 $ 278,632 FHLB borrowing availability (2) 1,068,085 943,492 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total off-balance sheet liquidity $ 1,500,824 $ 1,367,124 Total available liquidity $ 2,524,620 $ 2,407,703 (1) Investment securities available for sale at fair value. (2) Includes FHLB total borrowing availability of $1 .35 billion at September 30, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3 .17 billion. Net Interest Income and Net Interest Margin Net interest income increased $1.8 million , or 3.6%, during the third quarter of 2024 compared to the second quarter of 2024, due primarily to a $3.2 million increase in interest income offset partially by a $1.4 million increase in interest expense. Net interest margin increased four basis points to 3.33% during the third quarter of 2024 from 3.29% during the second quarter of 2024. The yield on interest earning assets increased 9 basis points to 5.02% for the third quarter of 2024, compared to 4.93% for the second quarter of 2024. The yield on loans receivable, net, increased 8 basis points to 5.60% during the third quarter of 2024 compared to 5.52% during the second quarter of 2024 due primarily to higher rates on new and renewed loans. The cost of interest bearing deposits increased 13 basis points to 2.02% for the third quarter of 2024 from 1.89% for the second quarter of 2024. This increase was primarily due to an increase in deposit rates during the quarter and an increase in certificate of deposit average balances of $68.5 million which carry higher rates than other interest bearing deposits. Net interest income decreased $2.7 million , or 4.8%, during the third quarter of 2024 compared to the third quarter of 2023 and the net interest margin decreased 14 basis points to 3.33% from 3.47% 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 September 30, 2024 June 30, 2024 September 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) $ 4,555,090 $ 64,138 5.60 % $ 4,415,790 $ 60,608 5.52 % $ 4,201,554 $ 56,119 5.30 % Taxable securities 1,604,529 13,472 3.34 1,685,795 14,156 3.38 1,931,649 14,590 3.00 Nontaxable securities (3) 17,482 159 3.62 18,812 165 3.53 60,654 448 2.93 Interest earning deposits 150,384 2,048 5.42 121,539 1,653 5.47 169,186 2,310 5.42 Total interest earning assets 6,327,485 79,817 5.02 % 6,241,936 76,582 4.93 % 6,363,043 73,467 4.58 % Noninterest earning assets 855,436 864,855 849,689 Total assets $ 7,182,921 $ 7,106,791 $ 7,212,732 Interest Bearing Liabilities: Certificates of deposit $ 906,743 $ 10,052 4.41 % $ 838,285 $ 9,128 4.38 % $ 553,015 $ 4,585 3.29 % Savings accounts 445,926 220 0.20 453,099 190 0.17 523,882 172 0.13 Interest bearing demand andmoney market accounts 2,644,827 9,984 1.50 2,625,593 9,135 1.40 2,764,251 7,120 1.02 Total interest bearing deposits 3,997,496 20,256 2.02 3,916,977 18,453 1.89 3,841,148 11,877 1.23 Junior subordinated debentures 21,946 541 9.81 21,874 539 9.91 21,649 540 9.90 Securities sold under agreementto repurchase — — — — — — 31,729 38 0.48 Borrowings 452,364 6,062 5.33 500,230 6,477 5.21 451,032 5,394 4.74 Total interest bearingliabilities 4,471,806 26,859 2.39 % 4,439,081 25,469 2.31 % 4,345,558 17,849 1.63 % Noninterest demand deposits 1,677,984 1,638,262 1,859,374 Other noninterest bearingliabilities 175,332 186,010 186,306 Stockholders' equity 857,799 843,438 821,494 Total liabilities andstockholders' equity $ 7,182,921 $ 7,106,791 $ 7,212,732 Net interest income and spread $ 52,958 2.63 % $ 51,113 2.62 % $ 55,618 2.95 % Net interest margin 3.33 % 3.29 % 3.47 % (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 $938,000 , $971,000 and $940,000 for the third quarter of 2024, second quarter of 2024 and third 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 decreased $3.4 million to $1.8 million during the third quarter of 2024 from $5.2 million during the second quarter of 2024. The decrease was due primarily to the increase in loss resulting from the above-referenced sale of investment securities recognized in the third quarter of 2024 as part of the strategic repositioning of the balance sheet, compared to the prior quarter. The decrease was partially offset by an increase 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 decreased $4.4 million from the same period in 2023 due primarily to a $6.9 million pre-tax loss on the sale of investment securities during the third quarter of 2024, offset partially by the gain on sale of other assets, net as discussed previously. The following table presents the key components of noninterest income and the change for the periods indicated: Quarter Ended Quarter OverQuarter Change Prior Year Quarter Change September 30 , 2024 June 30 , 2024 September 30 , 2023 $ % $ % (Dollars in thousands) Service charges and other fees $ 2,788 $ 2,817 $ 2,856 $ (29) (1.0) % $ (68) (2.4) % Card revenue 2,134 1,930 2,273 204 10.6 (139) (6.1) Loss on sale of investment securities (6,945) (1,921) (1,940) (5,024) 261.5 (5,005) 258.0 Gain on sale of loans, net — — 157 — — (157) (100.0) Interest rate swap fees — 52 62 (52) (100.0) (62) (100.0) Bank owned life insurance income 860 931 734 (71) (7.6) 126 17.2 Gain on sale of other assets, net 1,480 49 — 1,431 2,920.4 1,480 100.0 Other income 1,520 1,388 2,129 132 9.5 (609) (28.6) Total noninterest income $ 1,837 $ 5,246 $ 6,271 $ (3,409) (65.0) % $ (4,434) (70.7) % Noninterest Expense Noninterest expense increased $0.2 million , or 0.5%, during the third quarter of 2024 from the second quarter of 2024. Data processing expense increased during the quarter due primarily to timing of expenses and annual rate increases; however, data processing expense continued to be lower than the same period in 2023. Professional services expense decreased compared to the prior quarter, primarily due to timing of services performed. Noninterest expense decreased $1.7 million , or 4.1%, during the third quarter of 2024 compared to the same period in 2023. Compensation and employee benefits expense decreased due to a reduction in full-time equivalent employees to 749 at September 30, 2024 from 821 at September 30, 2023 . Data processing expense decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Marketing expense decreased due to expense management efforts to reduce spending. Other expense decreased due to a decrease in customer account loss expense and a reduction in employee related expense. The following table presents the key components of noninterest expense and the change for the periods indicated: Quarter Ended Quarter OverQuarter Change Prior YearQuarter Change September 30 , 2024 June 30 , 2024 September 30 , 2023 $ % $ % (Dollars in thousands) Compensation and employeebenefits $ 24,367 $ 24,448 $ 25,008 $ (81) (0.3) % $ (641) (2.6) % Occupancy and equipment 4,850 4,765 4,814 85 1.8 36 0.7 Data processing 3,915 3,535 4,116 380 10.7 (201) (4.9) Marketing 128 244 389 (116) (47.5) (261) (67.1) Professional services 490 795 582 (305) (38.4) (92) (15.8) State/municipal business and usetaxes 1,249 1,160 1,088 89 7.7 161 14.8 Federal deposit insurance premium 824 812 818 12 1.5 6 0.7 Amortization of intangible assets 399 421 595 (22) (5.2) (196) (32.9) Other expense 3,068 2,916 3,560 152 5.2 (492) (13.8) Total noninterest expense $ 39,290 $ 39,096 $ 40,970 $ 194 0.5 % $ (1,680) (4.1) % Income Tax Expense Income tax expense decreased $193,000 during the third quarter of 2024 to $1.6 million compared to $1.8 million for the second quarter of 2024. The decrease in income tax expense during the current quarter compared to the prior quarter was primarily due to a decrease in pre-tax income during the third quarter of 2024. Income tax expense decreased during the third quarter of 2024 compared to same period in 2023 due to lower pre-tax income during the third 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 September30, 2024 June 30 , 2024 September30, 2023 Quarter OverQuarter Prior YearQuarter (Dollars in thousands) Income before income taxes $ 13,066 $ 15,995 $ 21,797 $ (2,929) $ (8,731) Income tax expense $ 1,643 $ 1,836 $ 3,578 $ (193) $ (1,935) Effective income tax rate 12.6 % 11.5 % 16.4 % 1.1 % (3.8) % Dividends On October 23, 2024 , the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on November 20, 2024 to shareholders of record as of the close of business on November 6, 2024 . Earnings Conference Call The Company will hold a telephone conference call to discuss this earnings release on Thursday, October 24, 2024 at 10:00 a.m. Pacific time . To access the call, please dial (833) 470-1428 -- access code 493684 a few minutes prior to 10:00 a.m. Pacific time . The call will be available for replay through October 31, 2024 by dialing (866) 813-9403 -- access code 423520. 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, labor shortages and the effects of inflation, 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; 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; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of the upcoming 2024 presidential election; 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 and industry) within our loan portfolio; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions for our business, 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; 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 financial technology companies; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement 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; 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) September 30 , 2024 June 30 , 2024 December 31 , 2023 Assets Cash on hand and in banks $ 78,068 $ 55,469 $ 55,851 Interest earning deposits 97,504 58,288 169,122 Cash and cash equivalents 175,572 113,757 224,973 Investment securities available for sale, at fair value (amortized cost of $909,023 , $1,022,211 and $1,227,787 , respectively) 852,779 931,248 1,134,353 Investment securities held to maturity, at amortized cost (fair value of $661,696 , $642,051 and $662,450 , respectively) 719,400 727,342 739,442 Total investment securities 1,572,179 1,658,590 1,873,795 Loans receivable 4,679,479 4,532,615 4,335,627 Allowance for credit losses on loans (51,391) (51,219) (47,999) Loans receivable, net 4,628,088 4,481,396 4,287,628 Premises and equipment, net 72,500 73,218 74,899 Federal Home Loan Bank stock, at cost 16,993 22,303 4,186 Bank owned life insurance 127,248 126,420 125,655 Accrued interest receivable 20,102 19,855 19,518 Prepaid expenses and other assets 296,190 319,428 318,571 Other intangible assets, net 3,552 3,951 4,793 Goodwill 240,939 240,939 240,939 Total assets $ 7,153,363 $ 7,059,857 $ 7,174,957 Liabilities and Stockholders' Equity Non-interest bearing deposits $ 1,682,219 $ 1,599,367 $ 1,715,847 Interest bearing deposits 4,026,273 3,916,285 3,884,025 Total deposits 5,708,492 5,515,652 5,599,872 Borrowings 382,000 500,000 500,000 Junior subordinated debentures 21,985 21,912 21,765 Accrued expenses and other liabilities 166,372 171,786 200,059 Total liabilities 6,278,849 6,209,350 6,321,696 Common stock 534,917 541,294 549,748 Retained earnings 383,127 379,714 375,989 Accumulated other comprehensive loss, net (43,530) (70,501) (72,476) Total stockholders' equity 874,514 850,507 853,261 Total liabilities and stockholders' equity $ 7,153,363 $ 7,059,857 $ 7,174,957 Shares outstanding 34,153,539 34,496,197 34,906,233 HERITAGE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended Nine Months Ended September 30 , 2024 June 30 , 2024 September 30 , 2023 September 30 , 2024 September 30 , 2023 Interest Income Interest and fees on loans $ 64,138 $ 60,608 $ 56,119 $ 182,608 $ 160,192 Taxable interest on investment securities 13,472 14,156 14,590 42,462 44,021 Nontaxable interest on investment securities 159 165 448 505 1,554 Interest on interest earning deposits 2,048 1,653 2,310 5,177 4,436 Total interest income 79,817 76,582 73,467 230,752 210,203 Interest Expense Deposits 20,256 18,453 11,877 55,097 25,012 Junior subordinated debentures 541 539 540 1,627 1,521 Securities sold under agreement torepurchase — — 38 — 148 Borrowings 6,062 6,477 5,394 18,427 12,238 Total interest expense 26,859 25,469 17,849 75,151 38,919 Net interest income 52,958 51,113 55,618 155,601 171,284 Provision for(reversal of) credit losses 2,439 1,268 (878) 5,099 2,856 Net interest income after provision for (reversal of) credit losses 50,519 49,845 56,496 150,502 168,428 Noninterest Income Service charges and other fees 2,788 2,817 2,856 8,393 8,162 Card revenue 2,134 1,930 2,273 5,903 6,396 Loss on sale of investment securities, net (6,945) (1,921) (1,940) (18,839) (2,226) Gain on sale of loans, net — — 157 26 307 Interest rate swap fees — 52 62 52 230 Bank owned life insurance income 860 931 734 2,711 2,280 Gain on sale of other assets, net 1,480 49 — 1,529 2 Other income 1,520 1,388 2,129 4,408 6,659 Total noninterest income 1,837 5,246 6,271 4,183 21,810 Noninterest Expense Compensation and employee benefits 24,367 24,448 25,008 74,291 75,325 Occupancy and equipment 4,850 4,765 4,814 14,547 14,372 Data processing 3,915 3,535 4,116 10,732 12,427 Marketing 128 244 389 583 1,232 Professional services 490 795 582 1,852 1,961 State/municipal business and use taxes 1,249 1,160 1,088 3,709 3,150 Federal deposit insurance premium 824 812 818 2,431 2,465 Amortization of intangible assets 399 421 595 1,241 1,841 Other expense 3,068 2,916 3,560 9,370 11,127 Total noninterest expense 39,290 39,096 40,970 118,756 123,900 Income before income taxes 13,066 15,995 21,797 35,929 66,338 Income tax expense 1,643 1,836 3,578 4,599 10,816 Net income $ 11,423 $ 14,159 $ 18,219 $ 31,330 $ 55,522 Basic earnings per share $ 0.33 $ 0.41 $ 0.52 $ 0.91 $ 1.58 Diluted earnings per share $ 0.33 $ 0.41 $ 0.51 $ 0.90 $ 1.57 Dividends declared per share $ 0.23 $ 0.23 $ 0.22 $ 0.69 $ 0.66 Average shares outstanding - basic 34,322,069 34,609,900 35,022,676 34,584,851 35,062,760 Average shares outstanding - diluted 34,658,674 34,919,395 35,115,165 35,002,375 35,305,456 HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands) Average Balances, Yields, and Rates Paid: Nine Months Ended September 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) $ 4,425,234 $ 182,608 5.51 % $ 4,129,429 $ 160,192 5.19 % Taxable securities 1,699,995 42,462 3.34 1,975,818 44,021 2.98 Nontaxable securities(3) 19,193 505 3.51 71,702 1,554 2.90 Interest earning deposits 126,970 5,177 5.45 114,753 4,436 5.17 Total interest earning assets 6,271,392 230,752 4.91 % 6,291,702 210,203 4.47 % Noninterest earning assets 856,198 848,035 Total assets $ 7,127,590 $ 7,139,737 Interest Bearing Liabilities: Certificates of deposit $ 826,575 $ 26,852 4.34 % $ 442,301 $ 8,292 2.51 % Savings accounts 457,989 640 0.19 558,467 471 0.11 Interest bearing demand and money market accounts 2,643,478 27,605 1.39 2,791,695 16,249 0.78 Total interest bearing deposits 3,928,042 55,097 1.87 3,792,463 25,012 0.88 Junior subordinated debentures 21,874 1,627 9.94 21,576 1,521 9.43 Securities sold under agreement to repurchase — — — 38,187 148 0.52 Borrowings 484,300 18,427 5.08 339,296 12,238 4.82 Total interest bearing liabilities 4,434,216 75,151 2.26 % 4,191,522 38,919 1.24 % Noninterest demand deposits 1,657,867 1,942,134 Other noninterest bearing liabilities 186,081 186,469 Stockholders' equity 849,426 819,612 Total liabilities and stockholders' equity $ 7,127,590 $ 7,139,737 Net interest income and spread $ 155,601 2.65 % $ 171,284 3.23 % Net interest margin 3.31 % 3.64 % (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 $2.7 million and $2.4 million for the nine months ended September 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 Nine Months Ended September 30 , 2024 June 30 , 2024 September 30 , 2023 September 30 , 2024 September 30 , 2023 Allowance for Credit Losses on Loans: Balance, beginning of period $ 51,219 $ 49,736 $ 46,408 $ 47,999 $ 42,986 Provision for credit losses on loans 2,705 1,470 (635) 5,879 3,066 Charge-offs: Commercial business (2,560) (312) (15) (2,949) (176) Consumer (85) (238) (123) (446) (420) Total charge-offs (2,645) (550) (138) (3,395) (596) Recoveries: Commercial business 72 518 1,253 807 1,342 Consumer 40 45 59 101 149 Total recoveries 112 563 1,312 908 1,491 Net recoveries (charge-offs) (2,533) 13 1,174 (2,487) 895 Balance, end of period $ 51,391 $ 51,219 $ 46,947 $ 51,391 $ 46,947 Net charge-offs (recoveries) on loansto average loans receivable, netannualized 0.22 % — % (0.11) % 0.08 % (0.03) % September 30 , 2024 June 30 , 2024 December 31 , 2023 Nonperforming Assets: Nonaccrual loans: Commercial business $ 4,301 $ 3,826 $ 4,468 Total nonaccrual loans 4,301 3,826 4,468 Accruing loans past due 90 days or more 5,347 4,296 1,293 Total nonperforming loans 9,648 8,122 5,761 Other real estate owned — — — Nonperforming assets $ 9,648 $ 8,122 $ 5,761 ACL on loans to: Loans receivable 1.10 % 1.13 % 1.11 % Nonaccrual loans 1,194.86 % 1,338.71 % 1,074.28 % Nonaccrual loans to loans receivable 0.09 % 0.08 % 0.10 % Nonperforming loans to loans receivable 0.21 % 0.18 % 0.13 % Nonperforming assets to total assets 0.13 % 0.12 % 0.08 % HERITAGE FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Earnings: Net interest income $ 52,958 $ 51,113 $ 51,530 $ 53,871 $ 55,618 Provision for (reversal of) credit losses 2,439 1,268 1,392 1,424 (878) Noninterest income (loss) 1,837 5,246 (2,900) (3,147) 6,271 Noninterest expense 39,290 39,096 40,370 42,723 40,970 Net income 11,423 14,159 5,748 6,233 18,219 Pre-tax, pre-provision net income (1) 15,505 17,263 8,260 8,001 20,919 Basic earnings per share $ 0.33 $ 0.41 $ 0.17 $ 0.18 $ 0.52 Diluted earnings per share $ 0.33 $ 0.41 $ 0.16 $ 0.18 $ 0.51 Average Balances: Loans receivable, net (2) $ 4,555,090 $ 4,415,790 $ 4,303,394 $ 4,233,743 $ 4,201,554 Total investment securities 1,622,011 1,704,607 1,832,011 1,861,587 1,992,303 Total interest earning assets 6,327,485 6,241,936 6,244,138 6,269,805 6,363,043 Total assets 7,182,921 7,106,791 7,092,452 7,140,876 7,212,732 Total interest bearing deposits 3,997,496 3,916,977 3,868,890 3,849,067 3,841,148 Total noninterest demand deposits 1,677,984 1,638,262 1,657,132 1,772,261 1,859,374 Stockholders' equity 857,799 843,438 846,947 813,383 821,494 Financial Ratios: Return on average assets (3) 0.63 % 0.80 % 0.33 % 0.35 % 1.00 % Pre-tax, pre-provision return onaverage assets (1)(3) 0.86 0.98 0.47 0.44 1.15 Return on average commonequity (3) 5.30 6.75 2.73 3.04 8.80 Return on average tangible common equity (1)(3) 7.62 9.74 4.07 4.69 12.90 Adjusted return on average tangiblecommon equity (1)(3) 10.42 10.74 9.34 10.21 13.62 Efficiency ratio 71.7 69.4 83.0 84.2 66.2 Adjusted efficiency ratio (1) 65.2 67.1 68.9 70.4 64.8 Noninterest expense to average total assets (3) 2.18 2.21 2.29 2.37 2.25 Net interest spread (3) 2.63 2.62 2.70 2.84 2.95 Net interest margin (3) 3.33 3.29 3.32 3.41 3.47 (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 September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Select Balance Sheet: Total assets $ 7,153,363 $ 7,059,857 $ 7,091,283 $ 7,174,957 $ 7,150,588 Loans receivable, net 4,628,088 4,481,396 4,378,429 4,287,628 4,219,911 Total investment securities 1,572,179 1,658,590 1,730,516 1,873,795 1,894,392 Total deposits 5,708,492 5,515,652 5,532,327 5,599,872 5,635,187 Noninterest demand deposits 1,682,219 1,599,367 1,637,111 1,715,847 1,789,293 Stockholders' equity 874,514 850,507 847,580 853,261 813,546 Financial Measures: Book value per share $ 25.61 $ 24.66 $ 24.43 $ 24.44 $ 23.31 Tangible book value per share (1) 18.45 17.56 17.36 17.40 16.25 Stockholders' equity to total assets 12.2 % 12.0 % 12.0 % 11.9 % 11.4 % Tangible common equity to tangibleassets (1) 9.1 8.9 8.8 8.8 8.2 Loans to deposits ratio 82.0 82.2 80.0 77.4 75.7 Regulatory Capital Ratios: (2) Common equity tier 1 capital ratio 12.3 % 12.6 % 12.6 % 12.9 % 12.9 % Leverage ratio 9.9 10.1 10.0 10.0 9.9 Tier 1 capital ratio 12.7 13.0 13.0 13.3 13.3 Total capital ratio 13.6 13.9 13.9 14.1 14.1 Credit Quality Metrics: ACL on loans to: Loans receivable 1.10 % 1.13 % 1.12 % 1.11 % 1.10 % Nonperforming loans 1,194.9 1,338.7 1,037.9 1,074.3 1,531.7 Nonaccrual loans to loans receivable 0.09 0.08 0.11 0.10 0.07 Nonperforming loans to loansreceivable 0.21 0.18 0.17 0.13 0.12 Nonperforming assets to total assets 0.13 0.12 0.10 0.08 0.07 Net charge-offs (recoveries) on loansto average loans receivable, net(3) 0.22 0.00 0.00 0.06 (0.11) Criticized Loans by Credit Quality Rating: Special mention $ 99,078 $ 93,694 $ 102,232 $ 79,977 $ 72,152 Substandard 71,977 82,496 70,183 69,757 62,653 Other Metrics: Number of banking offices 50 50 50 50 50 Deposits per branch $ 114,170 $ 110,313 $ 110,647 $ 111,997 $ 112,704 Average number of full-time equivalentemployees 749 748 765 803 821 Average assets per full-timeequivalent employee 9,590 9,501 9,271 8,893 8,785 (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 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. September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 874,514 $ 850,507 $ 847,580 $ 853,261 $ 813,546 Exclude intangible assets (244,491) (244,890) (245,311) (245,732) (246,325) Tangible common equity (non-GAAP) $ 630,023 $ 605,617 $ 602,269 $ 607,529 $ 567,221 Total assets (GAAP) $ 7,153,363 $ 7,059,857 $ 7,091,283 $ 7,174,957 $ 7,150,588 Exclude intangible assets (244,491) (244,890) (245,311) (245,732) (246,325) Tangible assets (non-GAAP) $ 6,908,872 $ 6,814,967 $ 6,845,972 $ 6,929,225 $ 6,904,263 Stockholders' equity to total assets (GAAP) 12.2 % 12.0 % 12.0 % 11.9 % 11.4 % Tangible common equity to tangible assets (non-GAAP) 9.1 % 8.9 % 8.8 % 8.8 % 8.2 % Shares outstanding 34,153,539 34,496,197 34,689,843 34,906,233 34,901,076 Book value per share (GAAP) $ 25.61 $ 24.66 $ 24.43 $ 24.44 $ 23.31 Tangible book value per share (non-GAAP) $ 18.45 $ 17.56 $ 17.36 $ 17.40 $ 16.25 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 September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Return on Average Tangible Common Equity, annualized: Net income (GAAP) $ 11,423 $ 14,159 $ 5,748 $ 6,233 $ 18,219 Add amortization of intangibleassets 399 421 421 593 595 Exclude tax effect of adjustment (84) (88) (88) (125) (125) Tangible net income (non-GAAP) $ 11,738 $ 14,492 $ 6,081 $ 6,701 $ 18,689 Tangible net income (non-GAAP) $ 11,738 $ 14,492 $ 6,081 $ 6,701 $ 18,689 Exclude loss on sale ofinvestment securities, net 6,945 1,921 9,973 10,005 1,940 Exclude gain on sale of branchincluding related deposits, net — — — — (610) Exclude gain on sale of premisesand equipment (1,480) (49) — — — Exclude tax effect of adjustment (1,148) (393) (2,094) (2,101) (279) Adjusted tangible net income (non-GAAP) $ 16,055 $ 15,971 $ 13,960 $ 14,605 $ 19,740 Average stockholders' equity (GAAP) $ 857,799 $ 843,438 $ 846,947 $ 813,383 $ 821,494 Exclude average intangible assets (244,706) (245,106) (245,536) (246,022) (246,663) Average tangible commonstockholders' equity (non-GAAP) $ 613,093 $ 598,332 $ 601,411 $ 567,361 $ 574,831 Return on average common equity,annualized (GAAP) 5.30 % 6.75 % 2.73 % 3.04 % 8.80 % Return on average tangible commonequity, annualized (non-GAAP) 7.62 % 9.74 % 4.07 % 4.69 % 12.90 % Adjusted return on average tangiblecommon equity, annualized (non-GAAP) 10.42 % 10.74 % 9.34 % 10.21 % 13.62 % 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 September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized: Net income (GAAP) $ 11,423 $ 14,159 $ 5,748 $ 6,233 $ 18,219 Add income tax expense 1,643 1,836 1,120 344 3,578 Add (subtract) provision for(reversal of) credit losses 2,439 1,268 1,392 1,424 (878) Pre-tax, pre-provision income (non-GAAP) $ 15,505 $ 17,263 $ 8,260 $ 8,001 $ 20,919 Average total assets (GAAP) $ 7,182,921 $ 7,106,791 $ 7,092,452 $ 7,140,876 $ 7,212,732 Return on average assets, annualized(GAAP) 0.63 % 0.80 % 0.33 % 0.35 % 1.00 % Pre-tax, pre-provision return onaverage assets (non-GAAP) 0.86 % 0.98 % 0.47 % 0.44 % 1.15 % 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 September 30 , 2024 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 Adjusted Efficiency Ratio : Total noninterest expense (GAAP) $ 39,290 $ 39,096 $ 40,370 $ 42,723 $ 40,970 Net interest income (GAAP) $ 52,958 $ 51,113 $ 51,530 $ 53,871 $ 55,618 Total noninterest income (GAAP) $ 1,837 $ 5,246 $ (2,900) $ (3,147) $ 6,271 Exclude (gain) loss on sale ofinvestment securities, net 6,945 1,921 9,973 10,005 1,940 Exclude gain on sale of branchincluding related deposits,net — — — — (610) Exclude gain on sale of premisesand equipment (1,480) (49) — — — Adjusted total noninterest income(non-GAAP) $ 7,302 $ 7,118 $ 7,073 $ 6,858 $ 7,601 Efficiency ratio (GAAP) 71.7 % 69.4 % 83.0 % 84.2 % 66.2 % Adjusted efficiency ratio (non-GAAP) 65.2 % 67.1 % 68.9 % 70.4 % 64.8 % View original content: https://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2024-results-and-declares-regular-cash-dividend-of-0-23-per-share-302285454.html SOURCE Heritage Financial Corporation

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