Heritage Financial (HFWA) investor relations material

Executive summary

• Q3 net income was $18.7M, down 2.3% YoY, while adjusted net income was $22.8M; merger-related costs offset stronger net interest income.

• Net interest margin rose to 4.05% from 3.99% in Q2 and 3.64% in Q3 2025; management expects repricing tailwinds to support further NIM and NII improvement.

• Loans grew $133.5M and deposits $148.2M QoQ; commercial teams closed $388M in new commitments, with elevated payoffs and rising nonaccruals as watchpoints.

• Kitsap Bank systems conversion was completed in late September, ending most costs of carrying two platforms.

Financial highlights

• Net interest income was $77.3M, up 3.3% QoQ and 34.7% YoY; growth reflected higher average earning assets and improved margin.

• Q3 net income was $18.7M versus $17.5M in Q2; diluted EPS was $0.46 and adjusted diluted EPS was $0.55.

• Noninterest expense declined $2.4M QoQ to $62.0M as merger-related costs fell to $5.2M from $7.5M; GAAP and adjusted efficiency ratios were 71.6% and 62.2%.

• Loans rose $133.5M, or 2.3%, and deposits increased $148.2M, or 2.1%, QoQ; non-maturity deposits grew $189.6M.

• Provision for credit losses was $2.3M, including $998K of specific reserves; Q3 net charge-offs were $381K.

Outlook and guidance

• Management expects annualized loan growth in the mid-single-digit range for the next couple of quarters, based on pipeline and unfunded commitments; payoffs and rates remain variables.

• Q4 noninterest expense is expected at $55M-$56M as merger costs largely end; core expenses are expected to rise in 2027 with compensation, benefits and vendor costs.

• Commercial online banking conversion costs are expected at ~$500K in Q4 and ~$1.5M in each of Q1 and Q2 2027; project completion is expected by mid-2027.

• Acquisition targets include IRR above 15% and earnback under three years; strategic priorities include organic core banking and deposit growth, efficiency, conservative underwriting and disciplined M&A.

• Incremental accretion on acquired loans contributed $1.5M to Q3 interest income and 10 bps to loan yield; the benefit is expected to decline as acquired balances mature or prepay.