EX-99.1 2 a8-kexhibit991q224.htm EX-99.1
FOR IMMEDIATE RELEASE
DATE: July 25, 2024
HERITAGE FINANCIAL ANNOUNCES SECOND QUARTER 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND
Second Quarter 2024 Highlights
•Net income was $14.2 million, or $0.41 per diluted share, for the second quarter compared to $5.7 million, or $0.16 per diluted share, for the first quarter.
•The second quarter results include a loss on sale of securities of $1.9 million, or $0.04 per diluted share.
•Loans receivable increased $104.5 million, or 2.4% (9.5% annualized), during the second quarter.
•Net interest margin was 3.29% for the second quarter compared to 3.32% for the first quarter.
•Cost of total deposits was 1.34% for the second quarter compared to 1.19% for the first quarter.
•Noninterest expense to average total assets was 2.21% for the second quarter compared to 2.29% for the first quarter.
•Declared a regular cash dividend of $0.23 per share on July 24, 2024.
•Announced CEO succession plan, with Bryan McDonald named as President of Heritage Financial Corporation and as Chief Executive Officer of Heritage Bank effective July 1, 2024; Jeff Deuel will continue as Chief Executive Officer of Heritage Financial Corporation until May 6, 2025.
Olympia, WA - Heritage Financial Corporation (Nasdaq GS: HFWA) (the “Company”), the parent company of Heritage Bank (the "Bank"), today reported net income of $14.2 million for the second quarter of 2024 compared to $5.7 million for the first quarter of 2024 and $16.8 million for the second quarter of 2023. Diluted earnings per share for the second quarter of 2024 were $0.41 compared to $0.16 for the first quarter of 2024 and $0.48 for the second quarter of 2023.
In the second quarter of 2024, the Company incurred a pre-tax loss of $1.9 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which decreased diluted earnings per share by $0.04 for the quarter. The Company sold $38.7 million in investment securities with an estimated weighted average book yield of 2.73%. The proceeds from sales were used to fund loan growth for the quarter.
Jeff Deuel, Chief Executive Officer of the Company, commented, "We are pleased with our accomplishments for the second quarter including recognizing strong loan growth and we are seeing greater benefit from our ongoing expense management measures. Although we continue to experience modest margin compression, we expect our strategies will result in improved profitability as we transition into a more normalized rate environment."
1

Financial Highlights
The following table provides financial highlights at the dates and for the periods indicated:

| As of or for the Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023
| (Dollars in thousands, except per share amounts)
Net income | $ | 14,159 |  |  | $ | 5,748 |  |  | $ | 16,846 |
Pre-tax, pre-provision income(1) | $ | 17,263 |  |  | $ | 8,260 |  |  | $ | 21,780 |
Diluted earnings per share | $ | 0.41 |  |  | $ | 0.16 |  |  | $ | 0.48 |
Return on average assets(2) | 0.80 | % |  | 0.33 | % |  | 0.95 | %
Pre-tax, pre-provision return on average assets(1)(2) | 0.98 | % |  | 0.47 | % |  | 1.22 | %
Return on average common equity(2) | 6.75 | % |  | 2.73 | % |  | 8.19 | %
Return on average tangible common equity(1)(2) | 9.74 | % |  | 4.07 | % |  | 12.04 | %
Adjusted return on average tangible common equity(1)(2) | 10.76 | % |  | 9.34 | % |  | 12.04 | %
Net interest margin(2) | 3.29 | % |  | 3.32 | % |  | 3.56 | %
Cost of total deposits(2) | 1.34 | % |  | 1.19 | % |  | 0.61 | %
Efficiency ratio | 69.4 | % |  | 83.0 | % |  | 65.5 | %
Adjusted efficiency ratio(1) | 67.1 | % |  | 68.9 | % |  | 65.5 | %
Noninterest expense to average total assets(2) | 2.21 | % |  | 2.29 | % |  | 2.32 | %
Total assets | $ | 7,059,857 |  |  | $ | 7,091,283 |  |  | $ | 7,115,410 |
Loans receivable, net | $ | 4,481,396 |  |  | $ | 4,378,429 |  |  | $ | 4,204,936 |
Total deposits | $ | 5,515,652 |  |  | $ | 5,532,327 |  |  | $ | 5,595,543 |
Loan to deposit ratio(3) | 82.2 | % |  | 80.0 | % |  | 76.0 | %
Book value per share | $ | 24.66 |  |  | $ | 24.43 |  |  | $ | 23.39 |
Tangible book value per share(1) | $ | 17.56 |  |  | $ | 17.36 |  |  | $ | 16.34 |

(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Annualized.
(3) Loans receivable divided by total deposits.
Balance Sheet
Cash and cash equivalents decreased $75.9 million, or 40.0%, to $113.8 million at June 30, 2024 from $189.6 million at March 31, 2024 primarily due to an increase in loans.
Total investment securities decreased $71.9 million, or 4.2%, to $1.66 billion at June 30, 2024 from $1.73 billion at March 31, 2024. As previously discussed, the Company sold $38.7 million in investment securities at a loss of $1.9 million as part of its ongoing strategic balance sheet repositioning, in addition to which there were investment maturities and repayments of $33.6 million during the second quarter of 2024.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:

| June 30, 2024 |  | March 31, 2024 |  | Change
| Balance |  | % of Total |  | Balance |  | % of Total |  | $ |  | %
| (Dollars in thousands)
Investment securities available for sale, at fair value:
U.S. government and agency securities | $ | 12,474 |  |  | 0.8 | % |  | $ | 13,417 |  |  | 0.8 | % |  | $ | (943) |  |  | (7.0) | %
Municipal securities | 69,720 |  |  | 4.2 |  |  | 71,955 |  |  | 4.2 |  |  | (2,235) |  |  | (3.1) |
Residential CMO and MBS | 446,468 |  |  | 26.9 |  |  | 476,742 |  |  | 27.5 |  |  | (30,274) |  |  | (6.4) |
Commercial CMO and MBS | 378,768 |  |  | 22.8 |  |  | 409,468 |  |  | 23.7 |  |  | (30,700) |  |  | (7.5) |
Corporate obligations | 11,384 |  |  | 0.7 |  |  | 11,191 |  |  | 0.6 |  |  | 193 |  |  | 1.7 |
Other asset-backed securities | 12,434 |  |  | 0.7 |  |  | 13,737 |  |  | 0.8 |  |  | (1,303) |  |  | (9.5) |
Total | $ | 931,248 |  |  | 56.1 | % |  | $ | 996,510 |  |  | 57.6 | % |  | $ | (65,262) |  |  | (6.5) | %

2

| June 30, 2024 |  | March 31, 2024 |  | Change
| Balance |  | % of Total |  | Balance |  | % of Total |  | $ |  | %
| (Dollars in thousands)
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities | $ | 151,146 |  |  | 9.1 | % |  | $ | 151,110 |  |  | 8.7 | % |  | $ | 36 |  |  | — | %
Residential CMO and MBS | 256,742 |  |  | 15.5 |  |  | 262,359 |  |  | 15.2 |  |  | (5,617) |  |  | (2.1) |
Commercial CMO and MBS | 319,454 |  |  | 19.3 |  |  | 320,537 |  |  | 18.5 |  |  | (1,083) |  |  | (0.3) |
Total | $ | 727,342 |  |  | 43.9 | % |  | $ | 734,006 |  |  | 42.4 | % |  | $ | (6,664) |  |  | (0.9) | %
Total investment securities | $ | 1,658,590 |  |  | 100.0 | % |  | $ | 1,730,516 |  |  | 100.0 | % |  | $ | (71,926) |  |  | (4.2) | %

Loans receivable increase d $104.5 million, or 2.4%, to $4.53 billion at June 30, 2024 from $4.43 billion at March 31, 2024. New loans funded in the second quarter of 2024 and first quarter of 2024 totaled $166.7 million and $101.7 million, respectively. Loan prepayments increased slightly during the second quarter of 2024 to $48.5 million, compared to $39.1 million during the prior quarter.
Non-owner occupied CRE increased $56.9 million, or 3.3%, due primarily to new loan production of $40.7 million during the second quarter of 2024 and advances on outstanding commitments. Residential real estate loans increased $27.0 million, or 7.0%, due primarily to residential loan purchases. Commercial and industrial loans increased $19.1 million, or 2.5%, due primarily to new loan production of $62.8 million during the quarter, offset by pay downs on outstanding commitments.
The following table summarizes the Company's loans receivable, net at the dates indicated:

| June 30, 2024 |  | March 31, 2024 |  | Change
| Balance |  | % of Total |  | Balance |  | % of Total |  | $ |  | %
| (Dollars in thousands)
Commercial business: |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 779,495 |  |  | 17.2 | % |  | $ | 760,391 |  |  | 17.2 | % |  | $ | 19,104 |  |  | 2.5 | %
Owner-occupied commercial real estate ("CRE") | 953,518 |  |  | 21.0 |  |  | 951,583 |  |  | 21.5 |  |  | 1,935 |  |  | 0.2 |
Non-owner occupied CRE | 1,759,605 |  |  | 38.8 |  |  | 1,702,665 |  |  | 38.4 |  |  | 56,940 |  |  | 3.3 |
Total commercial business | 3,492,618 |  |  | 77.0 |  |  | 3,414,639 |  |  | 77.1 |  |  | 77,979 |  |  | 2.3 |
Residential real estate | 413,358 |  |  | 9.1 |  |  | 386,357 |  |  | 8.7 |  |  | 27,001 |  |  | 7.0 |
Real estate construction and land development: |  |  |  |  |  |  |  |  |  |  |
Residential | 80,451 |  |  | 1.8 |  |  | 84,081 |  |  | 1.9 |  |  | (3,630) |  |  | (4.3) |
Commercial and multifamily | 378,695 |  |  | 8.4 |  |  | 372,532 |  |  | 8.4 |  |  | 6,163 |  |  | 1.7 |
Total real estate construction and land development | 459,146 |  |  | 10.2 |  |  | 456,613 |  |  | 10.3 |  |  | 2,533 |  |  | 0.6 |
Consumer | 167,493 |  |  | 3.7 |  |  | 170,556 |  |  | 3.9 |  |  | (3,063) |  |  | (1.8) |
Loans receivable | 4,532,615 |  |  | 100.0 | % |  | 4,428,165 |  |  | 100.0 | % |  | 104,450 |  |  | 2.4 |
Allowance for credit losses on loans | (51,219) |  |  |  |  | (49,736) |  |  |  |  | (1,483) |  |  | 3.0 |
Loans receivable, net | $ | 4,481,396 |  |  |  |  | $ | 4,378,429 |  |  |  |  | $ | 102,967 |  |  | 2.4 | %

Total deposits decreased $16.7 million, or 0.3%, to $5.52 billion at June 30, 2024 from $5.53 billion at March 31, 2024. Certificates of deposit increased $103.5 million, or 13.3%, to $883.2 million at June 30, 2024 from $779.7 million at March 31, 2024 primarily due to transfers from non-maturity deposit accounts as customers moved balances to higher yielding accounts. Average total deposits increased $29.2 million to $5.56 billion for the second quarter of 2024, from $5.53 billion for the first quarter of 2024.
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The following table summarizes the Company's total deposits at the dates indicated:

| June 30, 2024 |  | March 31, 2024 |  | Change
| Balance |  | % of Total |  | Balance |  | % of Total |  | $ |  | %
| (Dollars in thousands)
Noninterest demand deposits | $ | 1,599,367 |  |  | 29.0 | % |  | $ | 1,637,111 |  |  | 29.5 | % |  | $ | (37,744) |  |  | (2.3) | %
Interest bearing demand deposits | 1,487,670 |  |  | 27.0 |  |  | 1,552,584 |  |  | 28.1 |  |  | (64,914) |  |  | (4.2) |
Money market accounts | 1,098,821 |  |  | 19.9 |  |  | 1,099,983 |  |  | 19.9 |  |  | (1,162) |  |  | (0.1) |
Savings accounts | 446,583 |  |  | 8.1 |  |  | 462,974 |  |  | 8.4 |  |  | (16,391) |  |  | (3.5) |
Total non-maturity deposits | 4,632,441 |  |  | 84.0 |  |  | 4,752,652 |  |  | 85.9 |  |  | (120,211) |  |  | (2.5) |
Certificates of deposit | 883,211 |  |  | 16.0 |  |  | 779,675 |  |  | 14.1 |  |  | 103,536 |  |  | 13.3 |
Total deposits | $ | 5,515,652 |  |  | 100.0 | % |  | $ | 5,532,327 |  |  | 100.0 | % |  | $ | (16,675) |  |  | (0.3) | %

Total borrowings were $500 million at June 30, 2024 and March 31, 2024. Federal Reserve Bank ("FRB") Bank Term Funding Program borrowings totaling $400 million matured in May 2024 and were replaced with $400 million in borrowings from the Federal Home Loan Bank ("FHLB") during the second quarter of 2024.
Total stockholders' equity increased $2.9 million, or 0.3%, to $850.5 million at June 30, 2024 compared to $847.6 million at March 31, 2024 due primarily to $14.2 million of net income recognized for the quarter, partially offset by $8.1 million in dividends paid to common shareholders and $4.4 million in common stock repurchases.
On April 24, 2024, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common stock or approximately 1.7 million shares. The new stock repurchase program superseded the previous stock repurchase program, which was authorized in March 2020 and allowed for the buyback of approximately 1.8 million shares. The previous program was substantially completed during the quarter ended March 31, 2024. During the second quarter of 2024, the Company repurchased 240,153 shares.
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as “well-capitalized” at June 30, 2024.
The following table summarizes the capital ratios for the Company at the dates indicated:

| June 30, 2024 |  | March 31, 2024 |  |
Stockholders' equity to total assets | 12.0% |  | 12.0% |  |
Tangible common equity to tangible assets (1) | 8.9 |  | 8.8 |  |
Common equity tier 1 capital ratio (2) | 12.6 |  | 12.6 |  |
Leverage ratio (2) | 10.1 |  | 10.0 |  |
Tier 1 capital ratio (2) | 13.0 |  | 13.0 |  |
Total capital ratio (2) | 13.9 |  | 13.9 |  |

(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.
Allowance for Credit Losses and Provision for Credit Losses
The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.13% at June 30, 2024 compared to 1.12% at March 31, 2024. During the second quarter of 2024, the Company recorded a $1.5 million provision for credit losses on loans, compared to a $1.7 million provision for credit losses on loans during the first quarter of 2024. The provision for credit losses on loans during the second quarter of 2024 was primarily driven by loan growth during the quarter.
During the second quarter of 2024, the Company recorded a $202,000 reversal of provision for credit losses on unfunded commitments compared to a $312,000 reversal of provision for credit losses on unfunded commitments during the first quarter of 2024. The reversal of provision for credit losses on unfunded commitments during the second quarter of 2024 was due primarily to a decrease in the unfunded exposure on loans and an increase in utilization rates.
4

The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments, and the related provision for (reversal of) credit losses for the periods indicated:

| As of or for the Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023
| ACL on Loans |  | ACL on Unfunded |  | Total |  | ACL on Loans |  | ACL on Unfunded |  | Total |  | ACL on Loans |  | ACL on Unfunded |  | Total
| (Dollars in thousands)
Balance, beginning of period | $ | 49,736 |  |  | $ | 976 |  |  | $ | 50,712 |  |  | $ | 47,999 |  |  | $ | 1,288 |  |  | $ | 49,287 |  |  | $ | 44,469 |  |  | $ | 1,856 |  |  | $ | 46,325 |
Provision for (reversal of) credit losses | 1,470 |  |  | (202) |  |  | 1,268 |  |  | 1,704 |  |  | (312) |  |  | 1,392 |  |  | 1,988 |  |  | (79) |  |  | 1,909 |
Net recoveries (net charge-offs) | 13 |  |  | — |  |  | 13 |  |  | 33 |  |  | — |  | — |  | 33 |  |  | (49) |  |  | — |  |  | (49) |
Balance, end of period | $ | 51,219 |  |  | $ | 774 |  |  | $ | 51,993 |  |  | $ | 49,736 |  |  | $ | 976 |  |  | $ | 50,712 |  |  | $ | 46,408 |  |  | $ | 1,777 |  |  | $ | 48,185 |

Credit Quality
The percentage of classified loans to loans receivable increased to 1.8% at June 30, 2024, compared to 1.6% at March 31, 2024. Classified loans include loans rated substandard or worse. The increase was due primarily to the downgrade of a single $15.1 million commercial and multifamily construction loan to substandard from special mention. Total loans designated as special mention decreased by $8.5 million to $93.7 million at June 30, 2024, compared to $102.2 million at March 31, 2024.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:

| June 30, 2024 |  | March 31, 2024
| Balance |  | % of Total |  | Balance |  | % of Total
| (Dollars in thousands)
Risk Rating: |  |  |  |  |  |  |
Pass | $ | 4,356,425 |  |  | 96.1 | % |  | $ | 4,255,750 |  |  | 96.1 | %
Special Mention | 93,694 |  |  | 2.1 |  |  | 102,232 |  |  | 2.3 |
Substandard | 82,496 |  |  | 1.8 |  |  | 70,183 |  |  | 1.6 |
Total | $ | 4,532,615 |  |  | 100.0 | % |  | $ | 4,428,165 |  |  | 100.0 | %

Nonaccrual loans to loans receivable were 0.08% and 0.11% at June 30, 2024 and March 31, 2024, respectively. Changes in nonaccrual loans during the periods indicated were as follows:

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023
| (Dollars in thousands)
Balance, beginning of period | $ | 4,792 |  |  | $ | 4,468 |  |  | $ | 4,815 |
Additions | 549 |  |  | 593 |  |  | — |
Net principal payments and transfers to accruing status | (483) |  |  | (269) |  |  | (185) |
Payoffs | (769) |  |  | — |  |  | — |
Charge-offs | (263) |  |  | — |  |  | — |
Balance, end of period | $ | 3,826 |  |  | $ | 4,792 |  |  | $ | 4,630 |

Liquidity
Total liquidity sources available at June 30, 2024 were $2.41 billion. This includes on- and off-balance sheet liquidity. The Company has access to FHLB advances and the FRB Discount Window. The Company's available liquidity sources at June 30, 2024 represented a coverage ratio of 43.7% of total deposits and 116.1% of estimated uninsured deposits.
5

The following table summarizes the Company's available liquidity:

| Quarter Ended
| June 30, 2024 |  | March 31, 2024
| (Dollars in thousands)
On-balance sheet liquidity |  |  |
Cash and cash equivalents | $ | 113,757 |  |  | $ | 189,647 |
Unencumbered investment securities available for sale (1) | 926,822 |  |  | 708,378 |
Total on-balance sheet liquidity | $ | 1,040,579 |  |  | $ | 898,025 |
Off-balance sheet liquidity |  |  |
FRB borrowing availability | $ | 278,632 |  |  | $ | 71,300 |
FHLB borrowing availability (2) | 943,492 |  |  | 1,384,631 |
Fed funds line borrowing availability with correspondent banks | 145,000 |  |  | 145,000 |
Total off-balance sheet liquidity | $ | 1,367,124 |  |  | $ | 1,600,931 |
Total available liquidity | $ | 2,407,703 |  |  | $ | 2,498,956 |

(1) Investment securities available for sale at fair value.
(2) Includes FHLB total borrowing availability of $1.34 billion at June 30, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.19 billion.
Net Interest Income and Net Interest Margin
Net interest income decreased $417,000, or 0.8%, during the second quarter of 2024 compared to the first quarter of 2024 due primarily to an increase of $2.6 million in interest expense offset partially by a $2.2 million increase in interest income. Net interest margin decreased three basis points to 3.29% during the second quarter of 2024 from 3.32% during the first quarter of 2024.
The cost of interest bearing deposits increased 19 basis points to 1.89% for the second quarter of 2024 from 1.70% for the first quarter of 2024. This increase was primarily due to customers transferring balances from non-maturity deposits to higher rate certificates of deposit.
The yield on interest earning assets increased 14 basis points to 4.93% for the second quarter of 2024, compared to 4.79% for the first quarter of 2024. The yield on loans receivable, net, increased 11 basis points to 5.52% during the second quarter of 2024 compared to 5.41% during the first quarter of 2024 due primarily to higher rates on new and renewed loans. The impact to loan yield from recoveries of interest and fees on loans classified as nonaccrual was three basis points during the second quarter of 2024, compared to no impact during the first quarter of 2024. The yield on taxable securities increased nine basis points to 3.38% during the second quarter of 2024 compared to 3.29% during the first quarter of 2024 due primarily to sales of lower yielding investments during the first and second quarters of 2024.
Net interest income decreased $4.7 million, or 8.4%, during the second quarter of 2024 compared to the second quarter of 2023 and the net interest margin decreased 27 basis points to 3.29% from 3.56% during this same period. The decrease was due primarily to an increase in interest expense resulting from increased deposit rates and borrowing expense, partially offset by an increase in yields earned on interest earning assets following increases in market interest rates.
The following table provides relevant net interest income information for the periods indicated:

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023
| Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1) |  | Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1) |  | Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1)
| (Dollars in thousands)
Interest Earning Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable, net (2)(3) | $ | 4,415,790 |  |  | $ | 60,608 |  |  | 5.52 | % |  | $ | 4,303,394 |  |  | $ | 57,862 |  |  | 5.41 | % |  | $ | 4,145,556 |  |  | $ | 53,623 |  |  | 5.19 | %
Taxable securities | 1,685,795 |  |  | 14,156 |  |  | 3.38 |  |  | 1,810,709 |  |  | 14,834 |  |  | 3.29 |  |  | 1,989,297 |  |  | 14,774 |  |  | 2.98 |
Nontaxable securities (3) | 18,812 |  |  | 165 |  |  | 3.53 |  |  | 21,302 |  |  | 181 |  |  | 3.42 |  |  | 71,803 |  |  | 520 |  |  | 2.90 |
Interest earning deposits | 121,539 |  |  | 1,653 |  |  | 5.47 |  |  | 108,733 |  |  | 1,476 |  |  | 5.46 |  |  | 90,754 |  |  | 1,154 |  |  | 5.10 |
Total interest earning assets | 6,241,936 |  |  | 76,582 |  |  | 4.93 | % |  | 6,244,138 |  |  | 74,353 |  |  | 4.79 | % |  | 6,297,410 |  |  | 70,071 |  |  | 4.46 | %
Noninterest earning assets | 864,855 |  |  |  |  |  |  | 848,314 |  |  |  |  |  |  | 845,455 |  |  |  |  |
Total assets | $ | 7,106,791 |  |  |  |  |  |  | $ | 7,092,452 |  |  |  |  |  |  | $ | 7,142,865 |  |  |  |  |
Interest Bearing Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit | $ | 838,285 |  |  | $ | 9,128 |  |  | 4.38 | % |  | $ | 733,816 |  |  | $ | 7,671 |  |  | 4.20 | % |  | $ | 421,451 |  |  | $ | 2,483 |  |  | 2.36 | %

6

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023
| Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1) |  | Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1) |  | Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1)
| (Dollars in thousands)
Savings accounts | 453,099 |  |  | 190 |  |  | 0.17 |  |  | 475,075 |  |  | 230 |  |  | 0.19 |  |  | 551,201 |  |  | 157 |  |  | 0.11 |
Interest bearing demand and money market accounts | 2,625,593 |  |  | 9,135 |  |  | 1.40 |  |  | 2,659,999 |  |  | 8,487 |  |  | 1.28 |  |  | 2,782,353 |  |  | 5,967 |  |  | 0.86 |
Total interest bearing deposits | 3,916,977 |  |  | 18,453 |  |  | 1.89 |  |  | 3,868,890 |  |  | 16,388 |  |  | 1.70 |  |  | 3,755,005 |  |  | 8,607 |  |  | 0.92 |
Junior subordinated debentures | 21,874 |  |  | 539 |  |  | 9.91 |  |  | 21,800 |  |  | 547 |  |  | 10.09 |  |  | 21,577 |  |  | 499 |  |  | 9.28 |
Securities sold under agreement to repurchase | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 39,755 |  |  | 63 |  |  | 0.64 |
Borrowings | 500,230 |  |  | 6,477 |  |  | 5.21 |  |  | 500,660 |  |  | 5,888 |  |  | 4.73 |  |  | 417,896 |  |  | 5,078 |  |  | 4.87 |
Total interest bearing liabilities | 4,439,081 |  |  | 25,469 |  |  | 2.31 | % |  | 4,391,350 |  |  | 22,823 |  |  | 2.09 | % |  | 4,234,233 |  |  | 14,247 |  |  | 1.35 | %
Noninterest demand deposits | 1,638,262 |  |  |  |  |  |  | 1,657,132 |  |  |  |  |  |  | 1,900,640 |  |  |  |  |
Other noninterest bearing liabilities | 186,010 |  |  |  |  |  |  | 197,023 |  |  |  |  |  |  | 183,250 |  |  |  |  |
Stockholders’ equity | 843,438 |  |  |  |  |  |  | 846,947 |  |  |  |  |  |  | 824,742 |  |  |  |  |
Total liabilities and stockholders’ equity | $ | 7,106,791 |  |  |  |  |  |  | $ | 7,092,452 |  |  |  |  |  |  | $ | 7,142,865 |  |  |  |  |
Net interest income and spread |  |  | $ | 51,113 |  |  | 2.62 | % |  |  |  | $ | 51,530 |  |  | 2.70 | % |  |  |  | $ | 55,824 |  |  | 3.11 | %
Net interest margin |  |  |  |  | 3.29 | % |  |  |  |  |  | 3.32 | % |  |  |  |  |  | 3.56 | %

(1) Annualized; average balances are calculated using daily balances.
(2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $971,000, $809,000 and $726,000 for the second quarter of 2024, first quarter of 2024 and second quarter of 2023, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
Noninterest Income
Noninterest income increased $8.1 million to $5.2 million during the second quarter of 2024 from a loss of $2.9 million during the first quarter of 2024. The increase was due primarily to the reduction of loss resulting from the sale of investment securities recognized in the second quarter of 2024 compared to the prior quarter.
Noninterest income decreased $2.0 million from the same period in 2023 due primarily to a $1.9 million pre-tax loss on the sale of investment securities during the second quarter of 2024. Card revenue declined modestly due to a reduction in card activity as non-maturity deposit balances have declined.
The following table presents the key components of noninterest income and the change for the periods indicated:

| Quarter Ended |  | Quarter Over Quarter Change |  | Prior Year Quarter Change
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | $ |  | % |  | $ |  | %
| (Dollars in thousands)
Service charges and other fees | $ | 2,817 |  |  | $ | 2,788 |  |  | $ | 2,682 |  |  | $ | 29 |  |  | 1.0 | % |  | $ | 135 |  |  | 5.0 | %
Card revenue | 1,930 |  |  | 1,839 |  |  | 2,123 |  |  | 91 |  |  | 4.9 |  |  | (193) |  |  | (9.1) |
Loss on sale of investment securities | (1,921) |  |  | (9,973) |  |  | — |  |  | 8,052 |  |  | (80.7) |  |  | (1,921) |  |  | (100.0) |
Gain on sale of loans, net | — |  |  | 26 |  |  | 101 |  |  | (26) |  |  | (100.0) |  |  | (101) |  |  | (100.0) |
Interest rate swap fees | 52 |  |  | — |  |  | 115 |  |  | 52 |  |  | — |  |  | (63) |  |  | (54.8) |
Bank owned life insurance income | 931 |  |  | 920 |  |  | 837 |  |  | 11 |  |  | 1.2 |  |  | 94 |  |  | 11.2 |
Gain on sale of other assets, net | 49 |  |  | — |  |  | — |  |  | 49 |  |  | — |  |  | 49 |  |  | 100.0 |
Other income | 1,388 |  |  | 1,500 |  |  | 1,423 |  |  | (112) |  |  | (7.5) |  |  | (35) |  |  | (2.5) |
Total noninterest income (loss) | $ | 5,246 |  |  | $ | (2,900) |  |  | $ | 7,281 |  |  | $ | 8,146 |  |  | (280.9) | % |  | $ | (2,035) |  |  | (27.9) | %

Noninterest Expense
Noninterest expense decreased $1.3 million, or 3.2%, during the second quarter of 2024 from the first quarter of 2024 due primarily to a decline in compensation and employee benefits. Compensation and employee benefits declined due primarily to severance costs resulting from staff reductions of $1.1 million recognized during the first quarter of 2024 offset partially by an increase in salary expense due to annual merit increases in base pay. Occupancy and equipment declined due primarily to a
7

decrease in maintenance costs related to winter weather conditions experienced in the first quarter of 2024. Data processing increased during the quarter due to a non-recurring $230,000 refund recognized in the first quarter of 2024 related to a contract termination.
Noninterest expense decreased $2.2 million, or 5.4%, during the second quarter of 2024 compared to the same period in 2023, primarily due to a decrease in data processing and other expense. Data processing decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Other expense decreased due to a decrease in customer account loss expense and a reduction in employee related expenses which included additional expenses in the second quarter of 2024 related to newly added teams. Compensation and employee benefits decreased due to a reduction in full-time equivalent employees to 748 at June 30, 2024 from 813 at June 30, 2023.
The following table presents the key components of noninterest expense and the change for the periods indicated:

| Quarter Ended |  | Quarter Over Quarter Change |  | Prior Year Quarter Change
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | $ |  | % |  | $ |  | %
| (Dollars in thousands)
Compensation and employee benefits | $ | 24,448 |  |  | $ | 25,476 |  |  | $ | 24,781 |  |  | $ | (1,028) |  |  | (4.0) | % |  | $ | (333) |  |  | (1.3) | %
Occupancy and equipment | 4,765 |  |  | 4,932 |  |  | 4,666 |  |  | (167) |  |  | (3.4) |  |  | 99 |  |  | 2.1 |
Data processing | 3,785 |  |  | 3,537 |  |  | 4,500 |  |  | 248 |  |  | 7.0 |  |  | (715) |  |  | (15.9) |
Marketing | 244 |  |  | 211 |  |  | 441 |  |  | 33 |  |  | 15.6 |  |  | (197) |  |  | (44.7) |
Professional services | 795 |  |  | 567 |  |  | 751 |  |  | 228 |  |  | 40.2 |  |  | 44 |  |  | 5.9 |
State/municipal business and use taxes | 1,160 |  |  | 1,300 |  |  | 1,054 |  |  | (140) |  |  | (10.8) |  |  | 106 |  |  | 10.1 |
Federal deposit insurance premium | 812 |  |  | 795 |  |  | 797 |  |  | 17 |  |  | 2.1 |  |  | 15 |  |  | 1.9 |
Amortization of intangible assets | 421 |  |  | 421 |  |  | 623 |  |  | — |  |  | — |  |  | (202) |  |  | (32.4) |
Other expense | 2,666 |  |  | 3,131 |  |  | 3,712 |  |  | (465) |  |  | (14.9) |  |  | (1,046) |  |  | (28.2) |
Total noninterest expense | $ | 39,096 |  |  | $ | 40,370 |  |  | $ | 41,325 |  |  | $ | (1,274) |  |  | (3.2) | % |  | $ | (2,229) |  |  | (5.4) | %

Income Tax Expense
Income tax expense increased $716,000 during the second quarter of 2024 to $1.8 million compared to $1.1 million for the first quarter of 2024. The increase in income tax expense during the current quarter compared to the prior quarter was primarily due to an increase in pre-tax income during the second quarter of 2024. The effective tax rate declined during the second quarter of 2024 compared to the prior quarter due to recognition of a discrete tax expense item related to restricted stock awards in the first quarter of 2024 and a reduction in forecasted pre-tax income which caused a downward adjustment to the annualized effective tax rate.
Income tax expense decreased during the second quarter of 2024 compared to the second quarter of 2023 due to lower pre-tax income during the second quarter of 2024. The effective tax rate declined due to lower pre-tax income which increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.
The following table presents the income tax expense and related metrics and the change for the periods indicated:

| Quarter Ended |  | Change
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | Quarter Over Quarter | Prior Year Quarter
| (Dollars in thousands)
Income before income taxes | $ | 15,995 |  |  | $ | 6,868 |  |  | $ | 19,871 |  |  | $ | 9,127 |  |  | $ | (3,876) |
Income tax expense | $ | 1,836 |  |  | $ | 1,120 |  |  | $ | 3,025 |  |  | $ | 716 |  |  | $ | (1,189) |
Effective income tax rate | 11.5 | % |  | 16.3 | % |  | 15.2 | % |  | (4.8) | % |  | (3.7) | %

Dividends
On July 24, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on August 21, 2024 to shareholders of record as of the close of business on August 7, 2024.
Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, July 25, 2024 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 281184 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through August 1, 2024 by dialing (866) 813-9403 -- access code 638306.
8

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.
Contact
Jeff Deuel, Chief Executive Officer, (360) 943-1500
Don Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: changes in general economic conditions generally, and in the financial services industry, nationally or in our local market areas, other markets where our lending relationships, or other aspects of our business operations or financial markets including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth, or increased political instability due to acts of war or terrorism; changes in the interest rate environment, including prior increases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing elevated inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short-period of time that resulted in a number of bank failures; the impact of recent bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the extensive regulatory framework that applies to us; potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; changes in the interest rate environment; the quality and composition of our securities portfolio and the impact of any adverse changes including market liquidity within the securities markets; legislative and regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather, natural disasters, widespread disease or pandemics; credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits; the concentration of large deposits from certain clients, who have balances above current Federal Deposit Insurance Corporation insurance limits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; the overall health of local and national real estate markets; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; disruptions, fraudulent activity, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions, including as a result of sophisticated attacks using artificial intelligence and similar tools; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; the composition of our executive management team and our ability to attract and retain key personnel; effects of critical accounting policies and judgments or new and revised accounting policies, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; our success at managing the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”) which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
9

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except shares)

| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023
Assets |  |  |  |  |
Cash on hand and in banks | $ | 55,469 |  |  | $ | 52,947 |  |  | $ | 55,851 |
Interest earning deposits | 58,288 |  |  | 136,700 |  |  | 169,122 |
Cash and cash equivalents | 113,757 |  |  | 189,647 |  |  | 224,973 |
Investment securities available for sale, at fair value (amortized cost of $1,022,211, $1,087,789 and $1,227,787, respectively) | 931,248 |  |  | 996,510 |  |  | 1,134,353 |
Investment securities held to maturity, at amortized cost (fair value of $642,051, $649,001 and $662,450, respectively) | 727,342 |  |  | 734,006 |  |  | 739,442 |
Total investment securities | 1,658,590 |  |  | 1,730,516 |  |  | 1,873,795 |
Loans receivable | 4,532,615 |  |  | 4,428,165 |  |  | 4,335,627 |
Allowance for credit losses on loans | (51,219) |  |  | (49,736) |  |  | (47,999) |
Loans receivable, net | 4,481,396 |  |  | 4,378,429 |  |  | 4,287,628 |
Premises and equipment, net | 73,218 |  |  | 74,092 |  |  | 74,899 |
Federal Home Loan Bank stock, at cost | 22,303 |  |  | 4,303 |  |  | 4,186 |
Bank owned life insurance | 126,420 |  |  | 125,615 |  |  | 125,655 |
Accrued interest receivable | 19,855 |  |  | 19,898 |  |  | 19,518 |
Prepaid expenses and other assets | 319,428 |  |  | 323,472 |  |  | 318,571 |
Other intangible assets, net | 3,951 |  |  | 4,372 |  |  | 4,793 |
Goodwill | 240,939 |  |  | 240,939 |  |  | 240,939 |
Total assets | $ | 7,059,857 |  |  | $ | 7,091,283 |  |  | $ | 7,174,957 |
Liabilities and Stockholders' Equity |  |  |  |  |
Non-interest bearing deposits | $ | 1,599,367 |  |  | $ | 1,637,111 |  |  | $ | 1,715,847 |
Interest bearing deposits | 3,916,285 |  |  | 3,895,216 |  |  | 3,884,025 |
Total deposits | 5,515,652 |  |  | 5,532,327 |  |  | 5,599,872 |
Borrowings | 500,000 |  |  | 500,000 |  |  | 500,000 |
Junior subordinated debentures | 21,912 |  |  | 21,838 |  |  | 21,765 |
Accrued expenses and other liabilities | 171,786 |  |  | 189,538 |  |  | 200,059 |
Total liabilities | 6,209,350 |  |  | 6,243,703 |  |  | 6,321,696 |
Common stock | 541,294 |  |  | 544,636 |  |  | 549,748 |
Retained earnings | 379,714 |  |  | 373,629 |  |  | 375,989 |
Accumulated other comprehensive loss, net | (70,501) |  |  | (70,685) |  |  | (72,476) |
Total stockholders' equity | 850,507 |  |  | 847,580 |  |  | 853,261 |
Total liabilities and stockholders' equity | $ | 7,059,857 |  |  | $ | 7,091,283 |  |  | $ | 7,174,957 |
Shares outstanding | 34,496,197 |  |  | 34,689,843 |  |  | 34,906,233 |

10

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)

| Quarter Ended |  | Six Months Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | June 30, 2024 |  | June 30, 2023
Interest Income |  |  |  |  |  |  |  |  |
Interest and fees on loans | $ | 60,608 |  |  | $ | 57,862 |  |  | $ | 53,623 |  |  | $ | 118,470 |  |  | $ | 104,073 |
Taxable interest on investment securities | 14,156 |  |  | 14,834 |  |  | 14,774 |  |  | 28,990 |  |  | 29,431 |
Nontaxable interest on investment securities | 165 |  |  | 181 |  |  | 520 |  |  | 346 |  |  | 1,106 |
Interest on interest earning deposits | 1,653 |  |  | 1,476 |  |  | 1,154 |  |  | 3,129 |  |  | 2,126 |
Total interest income | 76,582 |  |  | 74,353 |  |  | 70,071 |  |  | 150,935 |  |  | 136,736 |
Interest Expense |  |  |  |  |  |  |  |  |
Deposits | 18,453 |  |  | 16,388 |  |  | 8,607 |  |  | 34,841 |  |  | 13,135 |
Junior subordinated debentures | 539 |  |  | 547 |  |  | 499 |  |  | 1,086 |  |  | 981 |
Securities sold under agreement to repurchase | — |  |  | — |  |  | 63 |  |  | — |  |  | 110 |
Borrowings | 6,477 |  |  | 5,888 |  |  | 5,078 |  |  | 12,365 |  |  | 6,844 |
Total interest expense | 25,469 |  |  | 22,823 |  |  | 14,247 |  |  | 48,292 |  |  | 21,070 |
Net interest income | 51,113 |  |  | 51,530 |  |  | 55,824 |  |  | 102,643 |  |  | 115,666 |
Provision for credit losses | 1,268 |  |  | 1,392 |  |  | 1,909 |  |  | 2,660 |  |  | 3,734 |
Net interest income after provision for credit losses | 49,845 |  |  | 50,138 |  |  | 53,915 |  |  | 99,983 |  |  | 111,932 |
Noninterest Income |  |  |  |  |  |  |  |  |
Service charges and other fees | 2,817 |  |  | 2,788 |  |  | 2,682 |  |  | 5,605 |  |  | 5,306 |
Card revenue | 1,930 |  |  | 1,839 |  |  | 2,123 |  |  | 3,769 |  |  | 4,123 |
Loss on sale of investment securities, net | (1,921) |  |  | (9,973) |  |  | — |  |  | (11,894) |  |  | (286) |
Gain on sale of loans, net | — |  |  | 26 |  |  | 101 |  |  | 26 |  |  | 150 |
Interest rate swap fees | 52 |  |  | — |  |  | 115 |  |  | 52 |  |  | 168 |
Bank owned life insurance income | 931 |  |  | 920 |  |  | 837 |  |  | 1,851 |  |  | 1,546 |
Gain on sale of other assets, net | 49 |  |  | — |  |  | — |  |  | 49 |  |  | 2 |
Other income | 1,388 |  |  | 1,500 |  |  | 1,423 |  |  | 2,888 |  |  | 4,530 |
Total noninterest income (loss) | 5,246 |  |  | (2,900) |  |  | 7,281 |  |  | 2,346 |  |  | 15,539 |
Noninterest Expense |  |  |  |  |  |  |  |  |
Compensation and employee benefits | 24,448 |  |  | 25,476 |  |  | 24,781 |  |  | 49,924 |  |  | 50,317 |
Occupancy and equipment | 4,765 |  |  | 4,932 |  |  | 4,666 |  |  | 9,697 |  |  | 9,558 |
Data processing | 3,785 |  |  | 3,537 |  |  | 4,500 |  |  | 7,322 |  |  | 8,842 |
Marketing | 244 |  |  | 211 |  |  | 441 |  |  | 455 |  |  | 843 |
Professional services | 795 |  |  | 567 |  |  | 751 |  |  | 1,362 |  |  | 1,379 |
State/municipal business and use taxes | 1,160 |  |  | 1,300 |  |  | 1,054 |  |  | 2,460 |  |  | 2,062 |
Federal deposit insurance premium | 812 |  |  | 795 |  |  | 797 |  |  | 1,607 |  |  | 1,647 |
Amortization of intangible assets | 421 |  |  | 421 |  |  | 623 |  |  | 842 |  |  | 1,246 |
Other expense | 2,666 |  |  | 3,131 |  |  | 3,712 |  |  | 5,797 |  |  | 7,036 |
Total noninterest expense | 39,096 |  |  | 40,370 |  |  | 41,325 |  |  | 79,466 |  |  | 82,930 |
Income before income taxes | 15,995 |  |  | 6,868 |  |  | 19,871 |  |  | 22,863 |  |  | 44,541 |
Income tax expense | 1,836 |  |  | 1,120 |  |  | 3,025 |  |  | 2,956 |  |  | 7,238 |
Net income | $ | 14,159 |  |  | $ | 5,748 |  |  | $ | 16,846 |  |  | $ | 19,907 |  |  | $ | 37,303 |

11

| Quarter Ended |  | Six Months Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | June 30, 2024 |  | June 30, 2023
Basic earnings per share | $ | 0.41 |  |  | $ | 0.17 |  |  | $ | 0.48 |  |  | $ | 0.58 |  |  | $ | 1.06 |
Diluted earnings per share | $ | 0.41 |  |  | $ | 0.16 |  |  | $ | 0.48 |  |  | $ | 0.57 |  |  | $ | 1.06 |
Dividends declared per share | $ | 0.23 |  |  | $ | 0.23 |  |  | $ | 0.22 |  |  | $ | 0.46 |  |  | $ | 0.44 |
Average shares outstanding - basic | 34,609,900 |  | 34,825,471 |  | 35,058,155 |  | 34,717,685 |  | 35,083,133
Average shares outstanding - diluted | 34,919,395 |  | 35,227,138 |  | 35,126,590 |  | 35,127,407 |  | 35,348,268

12

HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Average Balances, Yields, and Rates Paid:

| Six Months Ended June 30,
| 2024 |  | 2023
| Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1) |  | Average Balance |  | Interest Earned/ Paid |  | Average Yield/ Rate (1)
Interest Earning Assets: |  |  |  |  |  |  |  |  |  |  |
Loans receivable, net(2)(3) | $ | 4,359,592 |  |  | $ | 118,470 |  |  | 5.46 | % |  | $ | 4,092,769 |  |  | $ | 104,073 |  |  | 5.13 | %
Taxable securities | 1,748,252 |  |  | 28,990 |  |  | 3.33 |  |  | 1,998,268 |  |  | 29,431 |  |  | 2.97 |
Nontaxable securities(3) | 20,057 |  |  | 346 |  |  | 3.47 |  |  | 77,317 |  |  | 1,106 |  |  | 2.88 |
Interest earning deposits | 115,136 |  |  | 3,129 |  |  | 5.47 |  |  | 87,086 |  |  | 2,126 |  |  | 4.92 |
Total interest earning assets | 6,243,037 |  |  | 150,935 |  |  | 4.86 | % |  | 6,255,440 |  |  | 136,736 |  |  | 4.41 | %
Noninterest earning assets | 856,584 |  |  |  |  |  |  | 847,195 |  |  |  |  |
Total assets | $ | 7,099,621 |  |  |  |  |  |  | $ | 7,102,635 |  |  |  |  |
Interest Bearing Liabilities: |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit | $ | 786,050 |  |  | $ | 16,799 |  |  | 4.30 | % |  | $ | 386,026 |  |  | $ | 3,707 |  |  | 1.94 | %
Savings accounts | 464,087 |  |  | 420 |  |  | 0.18 |  |  | 576,046 |  |  | 299 |  |  | 0.10 |
Interest bearing demand and money market accounts | 2,642,796 |  |  | 17,622 |  |  | 1.34 |  |  | 2,805,645 |  |  | 9,129 |  |  | 0.66 |
Total interest bearing deposits | 3,892,933 |  |  | 34,841 |  |  | 1.80 |  |  | 3,767,717 |  |  | 13,135 |  |  | 0.70 |
Junior subordinated debentures | 21,837 |  |  | 1,086 |  |  | 10.00 |  |  | 21,539 |  |  | 981 |  |  | 9.18 |
Securities sold under agreement to repurchase | — |  |  | — |  |  | — |  |  | 41,469 |  |  | 110 |  |  | 0.53 |
Borrowings | 500,445 |  |  | 12,365 |  |  | 4.97 |  |  | 282,502 |  |  | 6,844 |  |  | 4.89 |
Total interest bearing liabilities | 4,415,215 |  |  | 48,292 |  |  | 2.20 | % |  | 4,113,227 |  |  | 21,070 |  |  | 1.03 | %
Noninterest demand deposits | 1,647,697 |  |  |  |  |  |  | 1,984,200 |  |  |  |  |
Other noninterest bearing liabilities | 191,516 |  |  |  |  |  |  | 186,553 |  |  |  |  |
Stockholders’ equity | 845,193 |  |  |  |  |  |  | 818,655 |  |  |  |  |
Total liabilities and stockholders’ equity | $ | 7,099,621 |  |  |  |  |  |  | $ | 7,102,635 |  |  |  |  |
Net interest income and spread |  |  | $ | 102,643 |  |  | 2.66 | % |  |  |  | $ | 115,666 |  |  | 3.38 | %
Net interest margin |  |  |  |  | 3.31 | % |  |  |  |  |  | 3.73 | %

(1) Average balances are calculated using daily balances.
(2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $1.8 million and $1.5 million for the six months ended June 30, 2024 and 2023, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
13

HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:

| Quarter Ended |  | Six Months Ended
| June 30, 2024 |  | March 31, 2024 |  | June 30, 2023 |  | June 30, 2024 |  | June 30, 2023
Allowance for Credit Losses on Loans: |  |  |  |
Balance, beginning of period | $ | 49,736 |  |  | $ | 47,999 |  |  | $ | 44,469 |  |  | $ | 47,999 |  |  | $ | 42,986 |
Provision for credit losses on loans | 1,470 |  |  | 1,704 |  |  | 1,988 |  |  | 3,174 |  |  | 3,701 |
Charge-offs: |  |  |  |  |  |  |  |  |
Commercial business | (312) |  |  | (77) |  |  | — |  |  | (389) |  |  | (161) |
Consumer | (238) |  |  | (123) |  |  | (144) |  |  | (361) |  |  | (297) |
Total charge-offs | (550) |  |  | (200) |  |  | (144) |  |  | (750) |  |  | (458) |
Recoveries: |  |  |  |  |  |  |  |  |
Commercial business | 518 |  |  | 217 |  |  | 38 |  |  | 735 |  |  | 89 |
Consumer | 45 |  |  | 16 |  |  | 57 |  |  | 61 |  |  | 90 |
Total recoveries | 563 |  |  | 233 |  |  | 95 |  |  | 796 |  |  | 179 |
Net recoveries (charge-offs) | 13 |  |  | 33 |  |  | (49) |  |  | 46 |  |  | (279) |
Balance, end of period | $ | 51,219 |  |  | $ | 49,736 |  |  | $ | 46,408 |  |  | $ | 51,219 |  |  | $ | 46,408 |
Net charge-offs (recoveries) on loans to average loans receivable, net(1) | — | % |  | — | % |  | — | % |  | — | % |  | 0.01 | %

(1) Annualized.

| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023
Nonperforming Assets: |  |  |  |  |
Nonaccrual loans: |  |  |  |  |
Commercial business | $ | 3,826 |  |  | $ | 4,792 |  |  | $ | 4,468 |
Total nonaccrual loans | 3,826 |  |  | 4,792 |  |  | 4,468 |
Accruing loans past due 90 days or more | 4,296 |  |  | 2,628 |  |  | 1,293 |
Total nonperforming loans | 8,122 |  |  | 7,420 |  |  | 5,761 |
Other real estate owned | — |  |  | — |  |  | — |
Nonperforming assets | $ | 8,122 |  |  | $ | 7,420 |  |  | $ | 5,761 |
ACL on loans to: |  |  |  |  |
Loans receivable | 1.13 | % |  | 1.12 | % |  | 1.11 | %
Nonaccrual loans | 1,338.71 | % |  | 1,037.90 | % |  | 1,074.28 | %
Nonaccrual loans to loans receivable | 0.08 | % |  | 0.11 | % |  | 0.10 | %
Nonperforming loans to loans receivable | 0.18 | % |  | 0.17 | % |  | 0.13 | %
Nonperforming assets to total assets | 0.12 | % |  | 0.10 | % |  | 0.08 | %

14

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Earnings: |  |  |  |  |  |  |  |  |
Net interest income | $ | 51,113 |  |  | $ | 51,530 |  |  | $ | 53,871 |  |  | $ | 55,618 |  |  | $ | 55,824 |
Provision for (reversal of) credit losses | 1,268 |  |  | 1,392 |  |  | 1,424 |  |  | (878) |  |  | 1,909 |
Noninterest income (loss) | 5,246 |  |  | (2,900) |  |  | (3,147) |  |  | 6,271 |  |  | 7,281 |
Noninterest expense | 39,096 |  |  | 40,370 |  |  | 42,723 |  |  | 40,970 |  |  | 41,325 |
Net income | 14,159 |  |  | 5,748 |  |  | 6,233 |  |  | 18,219 |  |  | 16,846 |
Pre-tax, pre-provision net income (1) | 17,263 |  |  | 8,260 |  |  | 8,001 |  |  | 20,919 |  |  | 21,780 |
Basic earnings per share | $ | 0.41 |  |  | $ | 0.17 |  |  | $ | 0.18 |  |  | $ | 0.52 |  |  | $ | 0.48 |
Diluted earnings per share | $ | 0.41 |  |  | $ | 0.16 |  |  | $ | 0.18 |  |  | $ | 0.51 |  |  | $ | 0.48 |
Average Balances: |  |  |  |  |  |  |  |  |
Loans receivable, net (2) | $ | 4,415,790 |  |  | $ | 4,303,394 |  |  | $ | 4,233,743 |  |  | $ | 4,201,554 |  |  | $ | 4,145,556 |
Total investment securities | 1,704,607 |  |  | 1,832,011 |  |  | 1,861,587 |  |  | 1,992,303 |  |  | 2,061,100 |
Total interest earning assets | 6,241,936 |  |  | 6,244,138 |  |  | 6,269,805 |  |  | 6,363,043 |  |  | 6,297,410 |
Total assets | 7,106,791 |  |  | 7,092,452 |  |  | 7,140,876 |  |  | 7,212,732 |  |  | 7,142,865 |
Total interest bearing deposits | 3,916,977 |  |  | 3,868,890 |  |  | 3,849,067 |  |  | 3,841,148 |  |  | 3,755,005 |
Total noninterest demand deposits | 1,638,262 |  |  | 1,657,132 |  |  | 1,772,261 |  |  | 1,859,374 |  |  | 1,900,640 |
Stockholders' equity | 843,438 |  |  | 846,947 |  |  | 813,383 |  |  | 821,494 |  |  | 824,742 |
Financial Ratios: |  |  |  |  |  |  |  |  |
Return on average assets (3) | 0.80 | % |  | 0.33 | % |  | 0.35 | % |  | 1.00 | % |  | 0.95 | %
Pre-tax, pre-provision return on average assets (1)(3) | 0.98 |  |  | 0.47 |  |  | 0.44 |  |  | 1.15 |  |  | 1.22 |
Return on average common equity (3) | 6.75 |  |  | 2.73 |  |  | 3.04 |  |  | 8.80 |  |  | 8.19 |
Return on average tangible common equity (1)(3) | 9.74 |  |  | 4.07 |  |  | 4.69 |  |  | 12.90 |  |  | 12.04 |
Adjusted return on average tangible common equity (1)(3) | 10.76 |  |  | 9.34 |  |  | 10.21 |  |  | 13.62 |  |  | 12.04 |
Efficiency ratio | 69.4 |  |  | 83.0 |  |  | 84.2 |  |  | 66.2 |  |  | 65.5 |
Adjusted efficiency ratio | 67.1 |  |  | 68.9 |  |  | 70.4 |  |  | 64.8 |  |  | 65.5 |
Noninterest expense to average total assets (3) | 2.21 |  |  | 2.29 |  |  | 2.37 |  |  | 2.25 |  |  | 2.32 |
Net interest spread (3) | 2.62 |  |  | 2.70 |  |  | 2.84 |  |  | 2.95 |  |  | 3.11 |
Net interest margin (3) | 3.29 |  |  | 3.32 |  |  | 3.41 |  |  | 3.47 |  |  | 3.56 |

(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Average loans receivable, net includes loans held for sale.
(3) Annualized.
15

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)

| As of or for the Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Select Balance Sheet: |  |  |  |  |  |  |  |  |
Total assets | $ | 7,059,857 |  |  | $ | 7,091,283 |  |  | $ | 7,174,957 |  |  | $ | 7,150,588 |  |  | $ | 7,115,410 |
Loans receivable, net | 4,481,396 |  |  | 4,378,429 |  |  | 4,287,628 |  |  | 4,219,911 |  |  | 4,204,936 |
Total investment securities | 1,658,590 |  |  | 1,730,516 |  |  | 1,873,795 |  |  | 1,894,392 |  |  | 2,030,826 |
Total deposits | 5,515,652 |  |  | 5,532,327 |  |  | 5,599,872 |  |  | 5,635,187 |  |  | 5,595,543 |
Noninterest demand deposits | 1,599,367 |  |  | 1,637,111 |  |  | 1,715,847 |  |  | 1,789,293 |  |  | 1,857,492 |
Stockholders' equity | 850,507 |  |  | 847,580 |  |  | 853,261 |  |  | 813,546 |  |  | 819,733 |
Financial Measures: |  |  |  |  |  |  |  |  |
Book value per share | $ | 24.66 |  |  | $ | 24.43 |  |  | $ | 24.44 |  |  | $ | 23.31 |  |  | $ | 23.39 |
Tangible book value per share (1) | 17.56 |  |  | 17.36 |  |  | 17.40 |  |  | 16.25 |  |  | 16.34 |
Stockholders' equity to total assets | 12.0 | % |  | 12.0 | % |  | 11.9 | % |  | 11.4 | % |  | 11.5 | %
Tangible common equity to tangible assets (1) | 8.9 |  |  | 8.8 |  |  | 8.8 |  |  | 8.2 |  |  | 8.3 |
Loans to deposits ratio | 82.2 |  |  | 80.0 |  |  | 77.4 |  |  | 75.7 |  |  | 76.0 |
Regulatory Capital Ratios:(2) |  |  |  |  |  |  |  |  |
Common equity tier 1 capital ratio | 12.6 | % |  | 12.6 | % |  | 12.9 | % |  | 12.9 | % |  | 12.8 | %
Leverage ratio | 10.1 |  |  | 10.0 |  |  | 10.0 |  |  | 9.9 |  |  | 9.9 |
Tier 1 capital ratio | 13.0 |  |  | 13.0 |  |  | 13.3 |  |  | 13.3 |  |  | 13.2 |
Total capital ratio | 13.9 |  |  | 13.9 |  |  | 14.1 |  |  | 14.1 |  |  | 14.1 |
Credit Quality Metrics: |  |  |  |  |  |  |  |  |
ACL on loans to: |  |  |  |  |  |  |  |  |
Loans receivable | 1.13 | % |  | 1.12 | % |  | 1.11 | % |  | 1.10 | % |  | 1.09 | %
Nonperforming loans | 1,338.7 |  |  | 1,037.9 |  |  | 1,074.3 |  |  | 1,531.7 |  |  | 1,002.3 |
Nonaccrual loans to loans receivable | 0.08 |  |  | 0.11 |  |  | 0.10 |  |  | 0.07 |  |  | 0.11 |
Nonperforming loans to loans receivable | 0.18 |  |  | 0.17 |  |  | 0.13 |  |  | 0.12 |  |  | 0.16 |
Nonperforming assets to total assets | 0.12 |  |  | 0.10 |  |  | 0.08 |  |  | 0.07 |  |  | 0.10 |
Net charge-offs (recoveries) on loans to average loans receivable, net(3) | 0.00 |  |  | 0.00 |  |  | 0.06 |  |  | (0.11) |  |  | 0.00 |
Criticized Loans by Credit Quality Rating:
Special mention | $ | 93,694 |  |  | $ | 102,232 |  |  | $ | 79,977 |  |  | $ | 72,152 |  |  | $ | 84,623 |
Substandard | 82,496 |  |  | 70,183 |  |  | 69,757 |  |  | 62,653 |  |  | 58,653 |
Other Metrics: |  |  |  |  |  |  |  |  |
Number of banking offices | 50 |  |  | 50 |  |  | 50 |  |  | 50 |  |  | 51 |
Deposits per branch | $ | 110,313 |  |  | $ | 110,647 |  |  | $ | 111,997 |  |  | $ | 112,704 |  |  | $ | 109,717 |
Average number of full-time equivalent employees | 748 |  |  | 765 |  |  | 803 |  |  | 821 |  |  | 813 |
Average assets per full-time equivalent employee | 9,501 |  |  | 9,271 |  |  | 8,893 |  |  | 8,785 |  |  | 8,786 |

(1) See Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.
(3) Annualized.
16

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
This earnings release contains certain financial measures not presented in accordance with Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP measures used in this earnings release to the comparable GAAP measures are presented below.
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company’s capital levels.

| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP) | $ | 850,507 |  |  | $ | 847,580 |  |  | $ | 853,261 |  |  | $ | 813,546 |  |  | $ | 819,733 |
Exclude intangible assets | (244,890) |  |  | (245,311) |  |  | (245,732) |  |  | (246,325) |  |  | (246,920) |
Tangible common equity (non-GAAP) | $ | 605,617 |  |  | $ | 602,269 |  |  | $ | 607,529 |  |  | $ | 567,221 |  |  | $ | 572,813 |
Total assets (GAAP) | $ | 7,059,857 |  |  | $ | 7,091,283 |  |  | $ | 7,174,957 |  |  | $ | 7,150,588 |  |  | $ | 7,115,410 |
Exclude intangible assets | (244,890) |  |  | (245,311) |  |  | (245,732) |  |  | (246,325) |  |  | (246,920) |
Tangible assets (non-GAAP) | $ | 6,814,967 |  |  | $ | 6,845,972 |  |  | $ | 6,929,225 |  |  | $ | 6,904,263 |  |  | $ | 6,868,490 |
Stockholders' equity to total assets (GAAP) | 12.0 | % |  | 12.0 | % |  | 11.9 | % |  | 11.4 | % |  | 11.5 | %
Tangible common equity to tangible assets (non-GAAP) | 8.9 | % |  | 8.8 | % |  | 8.8 | % |  | 8.2 | % |  | 8.3 | %
Shares outstanding | 34,496,197 |  |  | 34,689,843 |  |  | 34,906,233 |  |  | 34,901,076 |  |  | 35,047,800 |
Book value per share (GAAP) | $ | 24.66 |  |  | $ | 24.43 |  |  | $ | 24.44 |  |  | $ | 23.31 |  |  | $ | 23.39 |
Tangible book value per share (non-GAAP) | $ | 17.56 |  |  | $ | 17.36 |  |  | $ | 17.40 |  |  | $ | 16.25 |  |  | $ | 16.34 |

17

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company’s ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio, which excludes certain non-recurring items is useful in measuring performance of the Company's ongoing business operations by removing the volatility of these non-recurring items.

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Return on Average Tangible Common Equity, annualized:
Net income (GAAP) | $ | 14,159 |  |  | $ | 5,748 |  |  | $ | 6,233 |  |  | $ | 18,219 |  |  | $ | 16,846 |
Add amortization of intangible assets | 421 |  |  | 421 |  |  | 593 |  |  | 595 |  |  | 623 |
Exclude tax effect of adjustment | (88) |  |  | (88) |  |  | (125) |  |  | (125) |  |  | (131) |
Tangible net income (non-GAAP) | $ | 14,492 |  |  | $ | 6,081 |  |  | $ | 6,701 |  |  | $ | 18,689 |  |  | $ | 17,338 |
Tangible net income (non-GAAP) | $ | 14,492 |  |  | $ | 6,081 |  |  | $ | 6,701 |  |  | $ | 18,689 |  |  | $ | 17,338 |
Exclude loss on sale of investment securities, net | 1,921 |  |  | 9,973 |  |  | 10,005 |  |  | 1,940 |  |  | — |
Exclude gain on sale of branch including related deposits, net | — |  |  | — |  |  | — |  |  | (610) |  |  | — |
Exclude tax effect of adjustment | (403) |  |  | (2,094) |  |  | (2,101) |  |  | (279) |  |  | — |
Adjusted tangible net income (non-GAAP) | $ | 16,010 |  |  | $ | 13,960 |  |  | $ | 14,605 |  |  | $ | 19,740 |  |  | $ | 17,338 |
Average stockholders' equity (GAAP) | $ | 843,438 |  |  | $ | 846,947 |  |  | $ | 813,383 |  |  | $ | 821,494 |  |  | $ | 824,742 |
Exclude average intangible assets | (245,106) |  |  | (245,536) |  |  | (246,022) |  |  | (246,663) |  |  | (247,278) |
Average tangible common stockholders' equity (non-GAAP) | $ | 598,332 |  |  | $ | 601,411 |  |  | $ | 567,361 |  |  | $ | 574,831 |  |  | $ | 577,464 |
Return on average common equity, annualized (GAAP) | 6.75 | % |  | 2.73 | % |  | 3.04 | % |  | 8.80 | % |  | 8.19 | %
Return on average tangible common equity, annualized (non-GAAP) | 9.74 | % |  | 4.07 | % |  | 4.69 | % |  | 12.90 | % |  | 12.04 | %
Adjusted return on average tangible common equity, annualized (non-GAAP) | 10.76 | % |  | 9.34 | % |  | 10.21 | % |  | 13.62 | % |  | 12.04 | %

The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions.

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized:
Net income (GAAP) | $ | 14,159 |  |  | $ | 5,748 |  |  | $ | 6,233 |  |  | $ | 18,219 |  |  | $ | 16,846 |
Add income tax expense | 1,836 |  |  | 1,120 |  |  | 344 |  |  | 3,578 |  |  | 3,025 |
Add (subtract) provision for (reversal of) credit losses | 1,268 |  |  | 1,392 |  |  | 1,424 |  |  | (878) |  |  | 1,909 |
Pre-tax, pre-provision income (non-GAAP) | $ | 17,263 |  |  | $ | 8,260 |  |  | $ | 8,001 |  |  | $ | 20,919 |  |  | $ | 21,780 |
Average total assets (GAAP) | $ | 7,106,791 |  |  | $ | 7,092,452 |  |  | $ | 7,140,876 |  |  | $ | 7,212,732 |  |  | $ | 7,142,865 |

18

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized:
Return on average assets, annualized (GAAP) | 0.80 | % |  | 0.33 | % |  | 0.35 | % |  | 1.00 | % |  | 0.95 | %
Pre-tax, pre-provision return on average assets (non-GAAP) | 0.98 | % |  | 0.47 | % |  | 0.44 | % |  | 1.15 | % |  | 1.22 | %

The Company believes that presenting an adjusted efficiency ratio, which excludes certain non-recurring items is useful in measuring operating income and expenses by removing the volatility of these non-recurring items.

| Quarter Ended
| June 30, 2024 |  | March 31, 2024 |  | December 31, 2023 |  | September 30, 2023 |  | June 30, 2023
Adjusted Efficiency Ratio :
Total noninterest expense (GAAP) | $ | 39,096 |  |  | $ | 40,370 |  |  | $ | 42,723 |  |  | $ | 40,970 |  |  | $ | 41,325 |
Net interest income (GAAP) | $ | 51,113 |  |  | $ | 51,530 |  |  | $ | 53,871 |  |  | $ | 55,618 |  |  | $ | 55,824 |
Total noninterest income (GAAP) | $ | 5,246 |  |  | $ | (2,900) |  |  | $ | (3,147) |  |  | $ | 6,271 |  |  | $ | 7,281 |
Exclude (gain) loss on sale of investment securities, net | 1,921 |  |  | 9,973 |  |  | 10,005 |  |  | 1,940 |  |  | — |
Exclude gain on sale of branch including related deposits, net | — |  |  | — |  |  | — |  |  | (610) |  |  | — |
Adjusted total noninterest income (non-GAAP) | $ | 7,167 |  |  | $ | 7,073 |  |  | $ | 6,858 |  |  | $ | 7,601 |  |  | $ | 7,281 |
Efficiency ratio (GAAP) | 69.4 | % |  | 83.0 | % |  | 84.2 | % |  | 66.2 | % |  | 65.5 | %
Adjusted efficiency ratio (non-GAAP) | 67.1 | % |  | 68.9 | % |  | 70.4 | % |  | 64.8 | % |  | 65.5 | %

19