PresentationGood afternoon. My name is Elisa, and I will be your moderator for the conference call today. At this time, I would like to welcome everyone to the Heritage Financial Investor Call. [Operator Instructions] Thank you. Bryan McDonald, CEO of Heritage Financial, you may begin.Bryan McDonaldCEO, President & Director Thanks, Elisa. Good morning, everyone, and thank you for joining us. We are here to talk about the recently announced combination between Heritage and Olympic Bancorp, the parent of Kits ...

PresentationGood afternoon. My name is Elisa, and I will be your moderator for the conference call today. At this time, I would like to welcome everyone to the Heritage Financial Investor Call. [Operator Instructions] Thank you. Bryan McDonald, CEO of Heritage Financial, you may begin.Bryan McDonaldCEO, President & Director Thanks, Elisa. Good morning, everyone, and thank you for joining us. We are here to talk about the recently announced combination between Heritage and Olympic Bancorp, the parent of Kits ...

Summary of Heritage Financial (NasdaqGS:HFWA) M&A Announcement Company and Industry - **Company**: Heritage Financial - **Acquisition Target**: Olympic Bancorp, parent of Kitsap Bank - **Industry**: Banking and Financial Services Core Points and Arguments 1. **Merger Announcement**: Heritage Financial announced an agreement to acquire Olympic Bancorp, which operates Kitsap Bank, a community bank with total assets of $1.7 billion and a history of 117 years [3][4] 2. **Strategic Fit**: The merger is described as a "win-win" for shareholders, enhancing scale, market presence, and financial returns. Both banks share a commitment to relationship banking and community service [3][4] 3. **Geographic Expansion**: The merger will extend Heritage's footprint into new communities in the Western Puget Sound region, where Kitsap Bank has a strong market share [6] 4. **Financial Terms**: The merger is an all-stock transaction with a fixed exchange ratio of 45 shares of Heritage common stock for each share of Olympic common stock, implying a deal value of approximately $176.6 million [10][11] 5. **EPS Projections**: The fully phased-in earnings per share (EPS) pickup is projected to be approximately 18% in 2027 [11] 6. **Cost Savings**: Heritage anticipates 35% cost savings from the merger, with 45% expected to be realized in 2026 and full realization in 2027 [12][28] 7. **Credit Quality**: Both banks have clean credit portfolios, with Kitsap's non-performing assets (NPA) to assets ratio at 0.01% [5][6] 8. **Employee Retention**: Key leaders from Kitsap Bank will be retained, and employment contracts have been signed to ensure continuity [62] Additional Important Insights 1. **Rate Sensitivity**: Both banks are neutral in their interest rate risk sensitivity, which is expected to remain stable post-merger [18] 2. **Future M&A Appetite**: Heritage's priority is to ensure the success of this transaction before considering further M&A opportunities [22] 3. **Loan to Deposit Ratio**: Heritage aims to improve its loan to deposit ratio to the mid to high 80% range, currently in the low 80s [67] 4. **Durbin Amendment Impact**: The potential impact of the Durbin Amendment on combined organizations could be up to $7 million in the future [48] 5. **Board Structure**: There will be no changes to the Heritage Board as a result of the merger, maintaining the current governance structure [75] This summary encapsulates the key points from the conference call regarding the merger between Heritage Financial and Olympic Bancorp, highlighting the strategic rationale, financial implications, and operational considerations.

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Transaction Overview - Heritage Financial Corporation (NASDAQ: HFWA) 将收购 Olympic Bancorp, Inc，后者是 Kitsap Bank 的控股公司[10] - 交易总价值约为 1.766 亿美元[21] - 预计交易将于 2026 年第一季度完成[21] Financial Impact - 预计 2027 年每股收益 (EPS) 增长 18%[11] - 内部收益率 (IRR) 为 20%[11] - 有形账面价值 (TBV) 回收期为 3 年[11] - 预计 2026 年成本节约 810 万美元，2027 年成本节约 1870 万美元[22] Balance Sheet and Deposit Information - Kitsap Bank 的总资产为 17 亿美元，总存款为 14 亿美元[11] - Kitsap Bank 的存款成本为 1.09%[11] - 合并后的公司预计总资产为 88 亿美元，总贷款额为 57 亿美元，总存款额为 72 亿美元[11] - Kitsap Bank 的不良资产 (NPAs) 与资产之比为 0.01%[11] - Kitsap Bank 的 83% 存款为非 CD 存款[13] Market Position - 合并后，HFWA 将成为 Puget Sound 地区领先的社区银行[13] - Kitsap Bank 在 Kitsap 县（Bremerton-Silverdale-Port Orchard MSA）拥有第一的市场份额，该市场存款额为 43 亿美元[13] - 合并后的 HFWA 资产将达到 90 亿美元，成为华盛顿州最大的银行[13]

Accessibility StatementSkip Navigation Olympic Bancorp Heritage Financial Corporation (PRNewsFoto/Heritage Financial Corporation) Strategic Expansion for Heritage Bank in the Puget Sound Region OLYMPIA, Wash. and PORT ORCHARD, Wash., Sept. 25, 2025 /PRNewswire/ -- Heritage Financial Corporation ("Heritage"), the holding company for Heritage Bank, (Nasdaq: HFWA) and Olympic Bancorp, Inc. ("Olympic"), the holding company for Kitsap Bank, jointly announced today the signing of a definitive agreement under whic ...

Company Overview - Heritage Financial (HFWA) is headquartered in Olympia and operates in the Finance sector, with a stock price change of 0.12% since the start of the year [3] - The company currently pays a dividend of $0.24 per share, resulting in a dividend yield of 3.91%, which is higher than the Financial - Savings and Loan industry's yield of 2.9% and the S&P 500's yield of 1.47% [3] Dividend Performance - The current annualized dividend of Heritage Financial is $0.96, reflecting a 4.3% increase from the previous year [4] - Over the past 5 years, the company has increased its dividend 4 times year-over-year, averaging an annual increase of 4.17% [4] - The current payout ratio is 52%, indicating that the company paid out 52% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year 2025, the Zacks Consensus Estimate predicts earnings of $2.11 per share, representing a 14.05% increase from the previous year [5] - The company is viewed as an attractive dividend play and a compelling investment opportunity, holding a Zacks Rank of 2 (Buy) [6]

Company Overview - Heritage Financial (HFWA) is a bank holding company headquartered in Olympia, experiencing a price change of -4.16% this year [3] - The company currently pays a dividend of $0.24 per share, resulting in a dividend yield of 4.09%, which is significantly higher than the Financial - Savings and Loan industry's yield of 2.96% and the S&P 500's yield of 1.5% [3] Dividend Performance - The current annualized dividend of Heritage Financial is $0.96, reflecting a 4.3% increase from the previous year [4] - Over the past 5 years, the company has increased its dividend 4 times year-over-year, averaging an annual increase of 4.17% [4] - The current payout ratio stands at 52%, indicating that the company paid out 52% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year, Heritage Financial anticipates solid earnings growth, with the Zacks Consensus Estimate for 2025 projected at $2.11 per share, representing a year-over-year growth rate of 14.05% [5] Investment Appeal - Heritage Financial is considered an attractive dividend play and a compelling investment opportunity, holding a Zacks Rank of 2 (Buy) [6]

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Heritage Financial Corporation's unaudited Condensed Consolidated Financial Statements, including financial condition, income, comprehensive income, equity, and cash flows, with detailed notes [Condensed Consolidated Statements of Financial Condition](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20FINANCIAL%20CONDITION) Total assets slightly decreased to $7.07 billion, driven by reduced investment securities, while total liabilities decreased and stockholders' equity increased to $888.2 million Condensed Consolidated Statements of Financial Condition (Unaudited) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total assets** | **$7,070,641** | **$7,106,278** | | Total investment securities | $1,346,274 | $1,467,679 | | Loans receivable, net | $4,722,326 | $4,749,655 | | **Total liabilities** | **$6,182,429** | **$6,242,751** | | Total deposits | $5,784,413 | $5,684,613 | | Borrowings | $263,200 | $383,000 | | **Total stockholders' equity** | **$888,212** | **$863,527** | [Condensed Consolidated Statements of Income](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Q2 2025 net income decreased to $12.2 million due to investment security losses, while H1 2025 net income increased to $26.1 million from higher net interest income Key Income Statement Data (Unaudited) | (Dollars in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $54,983 | $51,113 | $108,673 | $102,643 | | Provision for credit losses | $956 | $1,268 | $1,007 | $2,660 | | **Net income** | **$12,215** | **$14,159** | **$26,126** | **$19,907** | | Diluted earnings per share | $0.36 | $0.41 | $0.76 | $0.57 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section details accounting policies, including investment securities, loans, ACL, goodwill, derivatives, equity, fair value, and segment information for the commercial bank - The company's business consists primarily of commercial lending and deposit relationships with small and medium-sized businesses in Washington, Oregon, and Idaho[27](index=27&type=chunk) - Material estimates susceptible to significant change relate to the Allowance for Credit Losses (ACL) on investment securities, loans, and unfunded commitments, as well as goodwill impairment and the fair value of financial instruments[30](index=30&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=38&type=section&id=MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, highlighting Q2 2025 net income decrease to $12.2 million and H1 2025 increase to $26.1 million, covering income, expenses, and balance sheet changes [Results of Operations](index=39&type=section&id=RESULTS%20OF%20OPERATIONS) Q2 2025 net income decreased to $12.2 million due to investment losses, while H1 2025 net income rose to $26.1 million, with net interest margin expanding Net Income Performance | Period | Net Income (in millions) | Diluted EPS | YoY Change (Net Income) | | :--- | :--- | :--- | :--- | | Q2 2025 | $12.2 | $0.36 | -13.7% | | Q2 2024 | $14.2 | $0.41 | N/A | | H1 2025 | $26.1 | $0.76 | +31.2% | | H1 2024 | $19.9 | $0.57 | N/A | - The primary driver for the Q2 2025 net income decrease was a **$6.9 million pre-tax loss** on the sale of investment securities, part of a strategic balance sheet repositioning[134](index=134&type=chunk) - Net interest margin increased by **24 basis points** to **3.51%** for Q2 2025 compared to **3.27%** for the same period in 2024[147](index=147&type=chunk) [Financial Condition Overview](index=46&type=section&id=FINANCIAL%20CONDITION%20OVERVIEW) Total assets decreased to $7.07 billion, deposits grew to $5.78 billion, borrowings decreased, and stockholders' equity increased to $888.2 million Financial Condition Changes (June 30, 2025 vs. Dec 31, 2024) | Account | June 30, 2025 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $7.07 billion | -$35.6 million | -0.5% | | Loans receivable, net | $4.72 billion | -$27.3 million | -0.6% | | Total Deposits | $5.78 billion | +$99.8 million | +1.8% | | Borrowings | $263.2 million | -$119.8 million | -31.3% | | Total Stockholders' Equity | $888.2 million | +$24.7 million | +2.9% | - Nonaccrual loans increased significantly to **$9.9 million** at June 30, 2025, from **$4.1 million** at year-end 2024, primarily due to the addition of a **$6.0 million** real estate construction loan[175](index=175&type=chunk) - The Allowance for Credit Losses (ACL) on loans to total loans receivable ratio remained stable at **1.10%** at June 30, 2025, compared to **1.09%** at December 31, 2024[178](index=178&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains strong liquidity of $2.38 billion and capital ratios well above regulatory requirements, with Common Equity Tier 1 at 12.2% Available Liquidity (as of June 30, 2025) | Liquidity Source | Amount (in thousands) | | :--- | :--- | | On-balance sheet liquidity | $909,972 | | Off-balance sheet liquidity | $1,469,112 | | **Total available liquidity** | **$2,379,084** | Company Capital Ratios (as of June 30, 2025) | Ratio | Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common equity Tier 1 capital ratio | 12.2% | 6.5% | | Tier 1 capital ratio | 12.6% | 8.0% | | Total capital ratio | 13.6% | 10.0% | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=53&type=section&id=QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, with increased asset sensitivity; a 100 bps rate increase is estimated to raise net interest income by 1.2% Estimated Effect on Net Interest Income (NII) from Interest Rate Changes | Change in Interest Rates (Basis Points) | % Change in NII (June 30, 2025) | % Change in NII (Dec 31, 2024) | | :--- | :--- | :--- | | +200 | +1.4% | -0.1% | | +100 | +1.2% | +0.3% | | -100 | -0.8% | 0.0% | | -200 | -2.7% | -1.1% | - The increase in asset sensitivity at June 30, 2025, is attributed to an increase in interest-earning deposits, a reduction in short-term wholesale funding, and a decrease in fixed-rate investment securities[198](index=198&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=54&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were **effective**[201](index=201&type=chunk) - No material changes to internal control over financial reporting occurred during the second quarter of 2025[202](index=202&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=54&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company and its subsidiaries are not party to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank's business - There are no material pending legal proceedings against the Company or its subsidiaries outside of ordinary routine litigation[204](index=204&type=chunk) [ITEM 1A. RISK FACTORS](index=54&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the 2024 Annual Form 10-K[205](index=205&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=55&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company repurchased 197,829 shares of common stock at an average price of $23.31 per share in Q2 2025, with 796,832 shares remaining for repurchase Common Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | May 2025 | 104,754 | $23.33 | | June 2025 | 93,075 | $23.29 | | **Total Q2** | **197,829** | **$23.31** | - The current stock repurchase program was approved on April 24, 2024, authorizing the repurchase of up to **1,734,492 shares**[207](index=207&type=chunk)

Core Viewpoint - Heritage Financial (HFWA) has experienced a bearish trend, losing 10% in the past two weeks, but the formation of a hammer chart pattern suggests a potential trend reversal as buying interest may be increasing [1][2]. Technical Analysis - The hammer chart pattern indicates a potential bottom in a downtrend, where the stock opens lower, makes a new low, but then closes near its opening price, suggesting that bears may be losing control [4][5]. - The effectiveness of the hammer pattern is enhanced when used alongside other bullish indicators, as its strength is dependent on its placement on the chart [6]. Fundamental Analysis - Recent upward revisions in earnings estimates for HFWA serve as a bullish indicator, correlating strongly with near-term stock price movements [7]. - Over the last 30 days, the consensus EPS estimate for HFWA has increased by 2.1%, indicating that analysts expect better earnings than previously predicted [8]. - HFWA holds a Zacks Rank of 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks, which typically outperform the market [9][10].