Financial Highlights - Heritage Financial Corporation's assets reached $7.1 billion[16] - Deposits totaled $5.8 billion[16] - Loans receivable amounted to $4.8 billion[16] - Net income was $12.2 million[16] - The net interest margin stood at 3.51%[16] Capital and Ratios - The market capitalization was $863 million as of July 7, 2025[16] - The leverage ratio was 10.3%[16] - The total capital ratio was 13.6%[16] Loan Portfolio - Loans by Seattle MSA accounted for 48.6% which is $2,319 million of the total loan portfolio[27] - Loans by Portland OR-WA MSA accounted for 15.2% which is $728 million of the total loan portfolio[27] Deposit Portfolio - Deposits by Seattle WA MSA accounted for 44.0% which is $2,545 million of the total deposit portfolio[27] - Deposits by Portland OR-WA MSA accounted for 14.6% which is $841 million of the total deposit portfolio[27] - Noninterest demand deposits represented 27.4% of total deposits as of June 30, 2025[19] Investment Portfolio - Investment cashflows are estimated to be $543 million through Q2 of 2028[88]

Core Financial Performance - The company reported net income of $12.2 million for Q2 2025, down from $13.9 million in Q1 2025 and $14.2 million in Q2 2024 [2][7] - Diluted earnings per share were $0.36 for Q2 2025, compared to $0.40 in Q1 2025 and $0.41 in Q2 2024 [2][7] - The company incurred a pre-tax loss of $6.9 million on the sale of investment securities, impacting diluted earnings per share by $0.15 [3][7] Balance Sheet and Asset Management - Total investment securities decreased by $67.6 million, or 4.8%, to $1.35 billion at June 30, 2025 [8] - Loans receivable increased by $10 million, or 0.2%, to $4.77 billion at June 30, 2025 [11] - Total deposits decreased by $60.9 million, or 1.0%, to $5.78 billion at June 30, 2025 [12][14] Interest Income and Margin - Net interest margin increased to 3.51% in Q2 2025 from 3.44% in Q1 2025 [26][30] - Yield on loans increased to 5.50% from 5.45% in the previous quarter [27] - Net interest income rose by $1.3 million, or 2.4%, during Q2 2025 compared to Q1 2025 [29] Noninterest Income and Expenses - Noninterest income decreased by $2.4 million to $1.5 million in Q2 2025, primarily due to higher losses from the sale of investment securities [34][35] - Noninterest expense decreased by $0.3 million, or 0.7%, to $41.1 million in Q2 2025 compared to Q1 2025 [37] Credit Quality and Allowance for Credit Losses - The allowance for credit losses on loans was 1.10% of loans receivable at June 30, 2025, up from 1.09% at March 31, 2025 [18] - Classified loans increased to 2.1% of loans receivable, up from 1.4% in the previous quarter [21][22] - Nonaccrual loans increased by $5.4 million during Q2 2025 [21] Liquidity Position - Total liquidity sources available were $2.38 billion at June 30, 2025, representing a coverage ratio of 41.1% of total deposits [23][24]

Core Viewpoint - Heritage Financial (HFWA) is anticipated to report a year-over-year increase in earnings driven by higher revenues, with the actual results being a significant factor influencing its near-term stock price [1][2]. Earnings Expectations - The upcoming earnings report is expected to be released on July 24, with a consensus estimate of $0.50 per share, reflecting an 11.1% increase year-over-year. Revenues are projected to be $63.4 million, marking a 12.5% rise from the previous year [3][2]. Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating that analysts have not significantly altered their initial projections during this period [4]. Earnings Surprise Prediction - The Zacks Earnings ESP for Heritage Financial is +1.49%, suggesting that analysts have recently become more optimistic about the company's earnings prospects. The stock currently holds a Zacks Rank of 3, indicating a likelihood of beating the consensus EPS estimate [12]. Historical Performance - In the last reported quarter, Heritage Financial exceeded the expected earnings of $0.46 per share by delivering $0.49, resulting in a surprise of +6.52%. Over the past four quarters, the company has beaten consensus EPS estimates three times [13][14]. Conclusion - Heritage Financial is viewed as a strong candidate for an earnings beat, although investors are advised to consider additional factors beyond earnings results when making investment decisions [17].

Core Viewpoint - Heritage Financial (HFWA) has a strong track record of exceeding earnings estimates and is well-positioned for future earnings surprises [1][5]. Earnings Performance - For the last reported quarter, Heritage Financial achieved earnings of $0.49 per share, surpassing the Zacks Consensus Estimate of $0.46 per share, resulting in a surprise of 6.52% [2]. - In the previous quarter, the company reported earnings of $0.51 per share against an expected $0.46 per share, delivering a surprise of 10.87% [2]. Earnings Estimates - There has been a favorable change in earnings estimates for Heritage Financial, with a positive Zacks Earnings ESP (Expected Surprise Prediction) indicating a strong likelihood of an earnings beat [5][8]. - The current Earnings ESP for Heritage Financial is +1.49%, suggesting that analysts have recently become more optimistic about the company's earnings prospects [8]. Predictive Metrics - Stocks with a positive Earnings ESP and a Zacks Rank of 3 (Hold) or better have a nearly 70% chance of producing a positive surprise [6]. - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions [7].

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]