Group 1 - Heritage Financial (HFWA) shares have increased by 27% over the past year, indicating solid performance [1] - Despite the gains, shares are still below their post-election highs, reflecting market optimism regarding deregulation [1] Group 2 - The article emphasizes the importance of macro views and stock-specific turnaround stories for achieving outsized returns with a favorable risk/reward profile [1]

Core Points - Heritage Financial Corporation announced the appointment of Bryan D. McDonald as President and CEO, effective July 1, 2024, as part of a succession plan [1][2] - Jeffrey J. Deuel, the previous CEO since 2018, has retired and will serve in an advisory role until March 31, 2027 [2][3] - McDonald has extensive experience in various leadership roles within the bank, including President and Chief Operating Officer from 2021 to 2024 [1] Company Overview - Heritage Financial Corporation is based in Olympia, Washington, and operates Heritage Bank as its sole wholly-owned banking subsidiary [3] - Heritage Bank has a network of 51 banking offices across Washington, Oregon, and Idaho, and also operates under the Whidbey Island Bank name [3] - The company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA" [3]

Financial Performance - Net income for the three months ended March 31, 2025, was $13,911 thousand, a significant increase of 142.5% from $5,748 thousand in the same period of 2024[16]. - Basic earnings per share increased to $0.41 for Q1 2025, compared to $0.17 for Q1 2024, reflecting a growth of 141.2%[16]. - Other comprehensive income for Q1 2025 was $11,898 thousand, compared to $1,791 thousand in Q1 2024, showing a substantial improvement[18]. - Net income for the three months ended March 31, 2025, was $13,911,000, a significant increase from $5,748,000 in the same period of 2024, representing a growth of 142%[23]. - Net cash provided by operating activities increased to $19,253,000 in Q1 2025 from $12,899,000 in Q1 2024, reflecting a growth of 49%[23]. - Income before income taxes increased to $16,159 thousand in Q1 2025 from $6,868 thousand in Q1 2024, a change of $9,291 thousand[142]. - The effective income tax expense for the three months ended March 31, 2025, was $2.248 million, compared to $1.120 million for the same period in 2024[111]. Asset and Liability Management - Total assets increased to $7,129,862 thousand as of March 31, 2025, compared to $7,106,278 thousand at December 31, 2024, reflecting a growth of 0.33%[14]. - Total liabilities remained stable at $6,248,347 thousand as of March 31, 2025, compared to $6,242,751 thousand at December 31, 2024[14]. - Total deposits increased to $5,845,335 thousand as of March 31, 2025, up 2.83% from $5,684,613 thousand at the end of 2024[14]. - Total cash and cash equivalents at the end of the period rose to $248,660,000, compared to $189,647,000 at the end of Q1 2024, marking an increase of 31%[23]. - The company’s total capital ratio is 13.6%, exceeding the regulatory minimum of 8.0% for "adequately capitalized" institutions[165]. - The Company maintains a leverage ratio of 10.2% as of March 31, 2025, above the regulatory minimum of 4.0%[165]. Credit Quality and Loan Performance - The provision for credit losses decreased significantly to $51 thousand in Q1 2025 from $1,392 thousand in Q1 2024, indicating improved credit quality[16]. - The allowance for credit losses (ACL) on loans is $52,160,000 as of March 31, 2025, slightly down from $52,468,000, indicating a reduction of about 0.59%[54]. - As of March 31, 2025, there were no loans graded as Doubtful or Loss, maintaining a stable credit quality profile[59]. - The company actively monitors credit quality indicators, including trends in risk grades and nonperforming loans, to manage its loan portfolio effectively[56]. - The total past due loans as of March 31, 2025, were $9,325,000, with $8,339,000 categorized as 30-89 days past due and $986,000 as 90 days or more past due[64]. - The total gross charge-offs for the three months ended March 31, 2025, were $376,000, compared to $200,000 for the same period in 2024, reflecting an increase of 88%[62]. Investment Securities - As of March 31, 2025, the total investment securities held to maturity amounted to $697,561,000 with a fair value of $632,648,000, reflecting a gross unrealized loss of $64,941,000[40]. - The total investment securities available for sale were valued at $835,592,000 with a fair value of $764,394,000, resulting in gross unrealized losses of $72,283,000[42]. - The company reported net realized losses of $3,887,000 for the three months ended March 31, 2025, compared to $9,973,000 for the same period in 2024[46]. - The fair value of investment securities held to maturity was $632,648,000 as of March 31, 2025, compared to a carrying value of $697,561,000[104]. Dividends and Shareholder Returns - The company declared dividends of $0.24 per share in Q1 2025, slightly up from $0.23 per share in Q1 2024[16]. - The Company declared a cash dividend of $0.24 per share on January 22, 2025, reflecting a slight increase from the previous dividend of $0.23 per share[91]. - The Company authorized a new stock repurchase program on April 24, 2024, allowing the repurchase of up to 5% of outstanding common shares, totaling 1,734,492 shares, with 990,522 shares remaining available for repurchase as of March 31, 2025[92]. Market and Economic Conditions - The estimated effect on net interest income for a +200 basis points shock is an increase of $3.3 million (1.4%) as of March 31, 2025[173]. - The Company expects to fund LIHTC commitments totaling $31.4 million during the year ending December 31, 2025[108]. - The Company has not experienced any material changes in critical accounting estimates during the three months ended March 31, 2025[169]. - There have been no material changes to the risk factors outlined in the Company's 2024 Annual Form 10-K[180].

Financial Data and Key Metrics Changes - Total loan balances decreased by $37 million in Q1 2025 due to elevated payoffs and prepayments, with loan yields at 5.45%, down 2 basis points from Q4 2024 [7][12] - Total deposits increased by $160.7 million in the quarter, with 95% of this growth in non-mature deposits, primarily in money market accounts [9][27] - Net interest margin increased to 3.44% for Q1 from 3.36% in the prior quarter, driven by decreases in the cost of deposits and borrowings [12] - Non-interest expense increased by $1.8 million from the prior quarter, primarily due to higher benefit costs and payroll taxes [14] Business Line Data and Key Metrics Changes - Commercial lending closed $183 million in new loan commitments, down from $316 million in the previous quarter but up from $133 million in Q1 2024 [24] - The commercial loan pipeline ended Q1 at $460 million, up from $452 million in the previous quarter [25] - Investment balances decreased by $53.8 million, partly due to a pretax loss of $3.9 million on the sale of $61 million of securities [11] Market Data and Key Metrics Changes - The cost of interest-bearing deposits decreased to 1.92% in Q1 from 1.98% in the prior quarter, with expectations for further decreases due to repricing of CDs [10] - Non-performing loans improved from 0.11% of total loans at year-end to 0.09% [18] Company Strategy and Development Direction - The company aims to continue taking advantage of opportunities for growth and potential M&A, with a solid balance sheet and a strong loan pipeline [34][36] - The focus remains on prudent risk management and maintaining a strong capital position to navigate economic uncertainties [29][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about core profitability due to strong deposit growth and prudent risk management [5] - The company anticipates an annualized loan growth rate of 5% to 8% for Q2 2025, despite uncertainties in the market [77][82] Other Important Information - The company has 990,000 shares available for repurchase under the current plan, although no shares were repurchased in Q1 [15] - Credit quality metrics remained stable, with non-accrual loans totaling just over $4.4 million, representing 0.09% of total loans [17] Q&A Session Summary Question: Perspective on Heritage's position among independent banks - Management believes the bank is well-positioned with specific goals for 2025 and readiness for potential M&A opportunities [34][36] Question: Details on the new team in Spokane - The new team was sourced from a larger regional bank, and the decision was based on fit and market opportunity [38][40] Question: Comments on stock buyback activity - The decision on stock buybacks is made quarterly, with no repurchases in Q1 due to stock price considerations [43] Question: Margin and deposit costs - The NIM in March was 3.45%, with the cost of interest-bearing deposits at 1.92% [48] Question: Loan growth opportunities - The company sees balanced opportunities in commercial real estate and C&I, with a focus on deposit-rich clients [62] Question: Credit metrics and underwriting approach - Management is closely monitoring economic changes and adapting their credit management strategies accordingly [72]

Financial Performance - Net income for Q1 2025 was $13.9 million, or $0.40 per diluted share, up from $11.9 million, or $0.34 per diluted share in Q4 2024[3][6] - Net income for the quarter ended March 31, 2025, was $13,911 thousand, up 16.5% from $11,928 thousand in the previous quarter[44] - Basic earnings per share increased to $0.41 for the quarter ended March 31, 2025, compared to $0.35 in the previous quarter, representing a growth of 17.14%[44] - Net income increased to $13,911,000, compared to $11,928,000 in the previous quarter, reflecting a growth of 16.6%[48] - Noninterest income increased by $613,000 to $3.9 million in Q1 2025 compared to $3.3 million in Q4 2024, primarily due to an increase in bank owned life insurance income[30] - Noninterest income increased by $6.8 million compared to Q1 2024, mainly due to a decrease in losses from the sale of investment securities[31] Asset and Deposit Growth - Total deposits rose by $160.7 million, or 2.8%, to $5.85 billion, with non-maturity deposits increasing by $152.7 million, or 3.2%[6][12] - Total deposits increased by $160.7 million, or 2.8%, to $5,845,335 thousand as of March 31, 2025, compared to $5,684,613 thousand on December 31, 2024[42] - Total assets increased to $7,129,862 thousand as of March 31, 2025, compared to $7,106,278 thousand on December 31, 2024, reflecting a growth of 0.33%[42] - Total stockholders' equity rose by $18.0 million, or 2.1%, to $881.5 million at March 31, 2025, driven by $13.9 million of net income for the quarter[15] - Total stockholders' equity (GAAP) increased to $881,515 thousand as of March 31, 2025, up from $863,527 thousand in December 31, 2024, representing a growth of 1.1%[54] Loan and Investment Activity - Loans receivable decreased by $37.3 million, or 0.8%, to $4.76 billion, with new loans funded declining to $95.8 million from $181.0 million in Q4 2024[11][12] - Total investment securities decreased by $53.8 million, or 3.7%, to $1.41 billion, following the strategic sale of $60.9 million in securities[9][11] - Total loans receivable decreased to $4,764,848,000 from $4,802,123,000 in the previous quarter[50] Efficiency and Cost Management - The efficiency ratio was reported at 71.9%, compared to 69.3% in Q4 2024[7] - Noninterest expense rose by $1.8 million, or 4.7%, in Q1 2025 from Q4 2024, mainly due to higher compensation and employee benefits[33] - Noninterest expense increased to $41,383 thousand for the quarter ended March 31, 2025, compared to $39,540 thousand in the previous quarter, a rise of 4.66%[44] - The efficiency ratio for the quarter was 71.9%, compared to 69.3% in the previous quarter, indicating a decline in operational efficiency[48] - Adjusted efficiency ratio (non-GAAP) improved to 67.3% from 64.4% in the previous quarter, indicating enhanced operational efficiency[62] Capital and Liquidity - The common equity tier 1 capital ratio improved to 12.2% at March 31, 2025, up from 12.0% at December 31, 2024[16] - Total liquidity sources available were $2.54 billion at March 31, 2025, representing a coverage ratio of 43.5% of total deposits[21] - Tangible common equity (non-GAAP) rose to $637,726 thousand, compared to $619,435 thousand in the previous quarter, reflecting a 1.9% increase[54] - Return on average tangible common equity (annualized, non-GAAP) improved to 9.22% for the quarter ended March 31, 2025, up from 7.81% in the previous quarter[58] Dividend Information - A regular cash dividend of $0.24 per share was declared on April 23, 2025[6] - The Company declared a quarterly cash dividend of $0.24 per share, payable on May 21, 2025[37] - Dividends declared per share increased to $0.24 for the quarter ended March 31, 2025, compared to $0.23 in the previous quarter, reflecting a growth of 4.35%[44] Tax and Provision for Credit Losses - Income tax expense decreased by $2.2 million to $2.2 million in Q1 2025 compared to $4.4 million in Q4 2024, attributed to additional tax expense related to BOLI restructuring in the previous quarter[35] - The effective income tax rate for Q1 2025 was 13.9%, down from 27.0% in Q4 2024[36] - The allowance for credit losses on loans was 1.09% of loans receivable as of March 31, 2025, with a reversal of provision for credit losses of $9,000 during the first quarter[17] - The provision for credit losses was $51 thousand for the quarter ended March 31, 2025, significantly lower than $1,183 thousand in the previous quarter[44]

Financial Data and Key Metrics Changes - Total loan balances decreased by $37 million in Q1 due to elevated payoffs and prepayments, with loan yields at 5.45%, down 2 basis points from the previous quarter [4][5] - Total deposits increased by $160.7 million, primarily in non-maturity deposits, with a significant growth in money market accounts [5][6] - Net interest margin increased to 3.44% from 3.36% in the prior quarter, driven by decreases in the cost of deposits and borrowings [8][9] - Regulatory capital ratios remain above well-capitalized thresholds, with the TCE ratio rising to 9.3% from 9% in the prior quarter [10] Business Line Data and Key Metrics Changes - Commercial lending closed $183 million in new loan commitments, down from $316 million in the previous quarter, with a commercial loan pipeline of $460 million [17][18] - The average interest rate for new commercial loans was 6.83%, up 20 basis points from the previous quarter [19][20] Market Data and Key Metrics Changes - The cost of interest-bearing deposits decreased to 1.92% from 1.98% in the prior quarter, with expectations for further decreases due to repricing of CDs [6][9] - Non-performing loans improved to 0.09% of total loans, down from 0.11% at year-end [12][13] Company Strategy and Development Direction - The company aims to leverage its solid balance sheet and strong capital position to navigate economic uncertainties and pursue growth opportunities [20] - There is a focus on maintaining a balanced loan mix, particularly between commercial and industrial (C&I) loans and real estate [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about core profitability due to strong deposit growth and prudent risk management, projecting continued benefits through 2025 [3][20] - The company is closely monitoring emerging economic risks, including tariffs and federal funding changes, which could impact credit quality [15][55] Other Important Information - A pretax loss of $3.9 million was recognized on the sale of $61 million of securities as part of a strategic repositioning of the balance sheet [7] - The company has 990,000 shares available for repurchase under the current plan, with potential future buybacks depending on market conditions [10][33] Q&A Session Summary Question: Perspective on Heritage's position among independent banks in the Northwest - Management believes the bank is well-positioned with specific goals for 2025 and is ready for potential M&A opportunities [25][26] Question: Details on the new team in Spokane - The team was acquired from a larger regional bank, and the decision was based on a thorough assessment of fit and market opportunity [29][30] Question: Comments on stock buyback activity - The decision on buybacks is made quarterly, with no repurchases in Q1 due to stock price increases, but future activity may resume depending on conditions [32][33] Question: Spot cost on total deposits and NIM in March - The NIM in March was 3.45%, with the cost of interest-bearing deposits at 1.92% [37][41] Question: Opportunities for further growth in loan commitments - Management expects a balanced mix of C&I and real estate loans, with a strong focus on deposit growth [49][50] Question: Anticipated loan growth and appetite for credit - The company projects an annualized growth rate of 5% to 8% for Q2, with a strong pipeline but acknowledges uncertainty in the market [58][62]

Financial Data and Key Metrics Changes - Total loan balances decreased by $37 million in Q1 due to elevated payoffs and prepayments, with loan yields at 5.45%, down two basis points from the previous quarter [4][5] - Total deposits increased by $160.7 million, with 95% of this growth in non-maturity deposits, primarily in money market accounts [5][6] - Net interest margin increased to 3.44% from 3.36% in the prior quarter, driven by decreases in the cost of deposits and borrowings [8][10] - Noninterest expense increased by $1.8 million, primarily due to higher benefit costs and payroll taxes, with guidance for quarterly noninterest expenses in the range of $41 million to $42 million [9][10] - The tangible common equity (TCE) ratio improved to 9.3%, up from 9% in the prior quarter, indicating strong capital ratios [10] Business Line Data and Key Metrics Changes - Commercial lending closed $183 million in new loan commitments, down from $316 million in the previous quarter, with a commercial loan pipeline of $460 million [18][19] - The average interest rate for new commercial loans was 6.83%, up 20 basis points from the previous quarter [19][20] - The bank experienced total charge-offs of $376,000, with net charge-offs of $299,000, representing 0.03% of total loans on an annualized basis [15] Market Data and Key Metrics Changes - The bank's credit quality remained strong, with non-accrual loans totaling just over $4.4 million, representing 0.09% of total loans [12][13] - Criticized loans declined by $1 million during the quarter, with substandard loans consistent with prior year-end levels [13][14] Company Strategy and Development Direction - The company is focused on maintaining a solid balance sheet and is open to potential mergers and acquisitions, particularly with attractive banks in their footprint [25][27] - The bank aims for annualized loan growth of 5% to 8% in the second quarter, with a strong pipeline and ongoing monitoring of economic uncertainties [57][61] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about core profitability due to strong deposit growth and prudent risk management, despite emerging economic risks [3][20] - The company is closely monitoring developments around tariffs and federal funding, which could impact credit quality [15][53] Other Important Information - The bank did not repurchase any shares in Q1 but may consider it in the future depending on market conditions [10][32] - The Spokane team was acquired from a larger regional bank, reflecting the bank's strategy to expand its talent pool while managing expenses [28][30] Q&A Session Summary Question: Perspective on Heritage's position among independent banks - Management believes the bank is well-positioned with specific goals for 2025 and is ready for potential M&A opportunities [25][27] Question: Details on the Spokane team acquisition - The team was sought out due to a good fit with Heritage's customer base and market presence [28][30] Question: Comments on stock buyback activity - The decision on stock buybacks is made quarterly, with no repurchases in Q1 due to stock price increases [32] Question: Spot cost on total deposits and NIM in March - The NIM in March was 3.45%, with the cost of interest-bearing deposits at 1.92% [37][38] Question: Loan growth opportunities - Management sees balanced growth opportunities in commercial real estate and C&I, with a focus on deposit-rich clients [48][49] Question: Anticipated loan growth and economic uncertainty - The bank expects annualized loan growth of 5% to 8% in Q2, with ongoing monitoring of the economic environment [57][61]

INVESTOR PRESENTATION Q1 2025 FORWARD LOOKING STATEMENTS This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "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 ...

Core Insights - Heritage Financial (HFWA) reported revenue of $57.59 million for Q1 2025, an 18.4% year-over-year increase, with EPS of $0.49 compared to $0.40 a year ago [1] - The reported revenue fell short of the Zacks Consensus Estimate of $61.1 million, resulting in a surprise of -5.74%, while the EPS exceeded the consensus estimate of $0.46 by +6.52% [1] Financial Performance Metrics - Net Interest Margin was reported at 3.4%, matching the average estimate of three analysts [4] - Efficiency Ratio was 71.9%, higher than the estimated 67.6% by three analysts [4] - Total Nonperforming Assets stood at $4.44 million, significantly lower than the average estimate of $7.35 million from two analysts [4] - Total Nonaccrual Loans were also reported at $4.44 million, again below the average estimate of $7.35 million from two analysts [4] - Average Balance of Total Interest Earning Assets was $6.33 billion, slightly below the estimated $6.35 billion by two analysts [4] - Net charge-offs on loans to average loans receivable were reported at 0%, better than the estimated 0.1% by two analysts [4] - Total Noninterest Income was $3.90 million, significantly lower than the estimated $7.39 million by three analysts [4] - Net Interest Income was reported at $53.69 million, marginally below the estimated $53.70 million by three analysts [4] Stock Performance - Heritage Financial shares have returned -4.9% over the past month, compared to a -5.1% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Core Viewpoint - Heritage Financial (HFWA) reported quarterly earnings of $0.49 per share, exceeding the Zacks Consensus Estimate of $0.46 per share, and showing an increase from $0.40 per share a year ago, indicating a positive earnings surprise of 6.52% [1] Financial Performance - The company posted revenues of $57.59 million for the quarter ended March 2025, which fell short of the Zacks Consensus Estimate by 5.74%, compared to $48.63 million in revenues from the same quarter last year [2] - Over the last four quarters, Heritage Financial has surpassed consensus EPS estimates three times, but has only topped consensus revenue estimates once [2] Stock Performance - Heritage Financial shares have declined approximately 6.2% since the beginning of the year, while the S&P 500 has seen a decline of 8.6% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating it is expected to perform in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.49 on revenues of $62.87 million, and for the current fiscal year, it is $2.03 on revenues of $253.9 million [7] - The estimate revisions trend for Heritage Financial is mixed, and future earnings expectations will depend on management's commentary during the earnings call [3][4] Industry Context - The Financial - Savings and Loan industry, to which Heritage Financial belongs, is currently ranked in the top 28% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8]