HERITAGE FINANCIAL CORP WA

Net Income Overview

Net income decreased $6.8 million, or 37.3%, to $11.4 million, or $0.33 per diluted common share, for the three months ended September 30, 2024, compared to $18.2 million, or $0.51 per diluted common share, for the same period in 2023.

The decrease in net income was primarily due to a $9.0 million increase in interest expense from higher funding costs and a pre-tax loss of $6.9 million on the sale of investment securities in connection with management's strategic repositioning of the Company's balance sheet during the three months ended September 30, 2024,

The decline in net income was partially offset by a $6.4 million increase in income due to increased yields earned on interest earning assets as a result of higher market interest rates and a $1.7 million decrease in noninterest expense due to management's expense management initiatives which included a reduction in full-time equivalent employees ("FTE") to 749 at September 30, 2024 compared to 821 at September 30, 2023 and technology-related contract renewals and terminations.

Comparison of the nine months ended September 30, 2024 to the comparable period in the prior year.

Net income decreased$24.2 million, or 43.6%, to$31.3 million, or $0.90 per diluted common share, for the nine months ended September 30, 2024 compared to $55.5 million, or $1.57 per diluted common share, for the same period in 2023.

Thedecrease in net income was due primarily toa $36.2 million increase in interest expense from higher funding costs and a pre-tax loss of $18.8 million on the sale of investment securities incurred during thenine months ended September 30, 2024 in connection with management's strategic repositioning of the Company's balance sheet. The Company sold investment securities with an amortized cost of $260.8 million and an estimated weighted average book yield of 2.27% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05% during thenine months ended September 30, 2024. The remaining proceeds from investment sales were invested in loans.

The decline in net income was partially offset by a $20.5 million increase in interest income due to an increase in yields earned on interest earning assets as a result of higher market interest rates and a decrease in noninterest expense of$5.1 million due to management's expense management initiatives, which included a reduction in FTE and technology-related contract renewals and terminations.