Net income was $5.7 million, or $0.16 per diluted share, for the first quarter of 2024 compared to $6.2 million, or $0.18 per diluted share, for the fourth quarter of 2023. Significant items in the first quarter of 2024 results include a loss on sale of securities of $10.0 million, or $0.22 per diluted share, and costs relating to expense management measures of $1.1 million, or $0.02 per diluted share. Loans receivable increased $92.5 million, or 2.1% (8.4% annualized), during the first quarter of 2024. Net interest margin was 3.32% for the first quarter of 2024 compared to 3.41% for the fourth quarter of 2023. Cost of total deposits was 1.19% for the first quarter of 2024 compared to 1.01% for the fourth quarter of 2023. Declared a regular cash dividend of $0.23 per share on April 24, 2024. Approved a new stock repurchase program authorizing the repurchase of up to 5% of the Company's outstanding shares, or approximately 1.7 million shares. OLYMPIA, Wash., April 25, 2024 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company of Heritage Bank (the "Bank"), today reported net income of $5.7 million for the first quarter of 2024 compared to $6.2 million for the fourth quarter of 2023 and $20.5 million for the first quarter of 2023. Diluted earnings per share for the first quarter of 2024 were $0.16 compared to $0.18 for the fourth quarter of 2023 and $0.58 for the first quarter of 2023. In the first quarter of 2024, the Company incurred a pre-tax loss of $10.0 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which affected diluted earnings per share by $0.22 for the quarter. The Company sold $144.0 million in investment securities with an estimated weighted average book yield of 2.37% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05%. The remaining proceeds from sales were invested in interest earning deposits with a current yield of 5.40%. As a result of these actions, we anticipate an estimated annualized improvement of $4.6 million in interest income. Similar actions were taken during the fourth quarter of 2023 for which we incurred a pre-tax loss of $10.0 million and estimated annualized improvement of $5.3 million in interest income. Further, approximately $1.1 million of severance costs were incurred in the first quarter of 2024 as part of expense management initiatives, which affected diluted earnings per share by $0.02 for the quarter. Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "We are pleased with our continued accomplishments in the first quarter including strong loan growth, repositioning of our balance sheet and expense management measures, which will strengthen our earnings in future periods.  Although negatively impacting current earnings, we believe these actions will enhance our sustainable long-term returns for our shareholders." Financial Highlights The following table provides financial highlights at the dates and for the periods indicated: As of or for the Quarter Ended March 31, 2024 December 31,2023 March 31,2023 (Dollars in thousands, except per share amounts) Net income $            5,748 $            6,233 $          20,457 Pre-tax, pre-provision income(1) $            8,260 $            8,001 $          26,495 Diluted earnings per share $               0.16 $               0.18 $               0.58 Return on average assets(2) 0.33 % 0.35 % 1.17 % Pre-tax, pre-provision return on average assets(1)(2) 0.47 % 0.44 % 1.52 % Return on average common equity(2) 2.73 % 3.04 % 10.21 % Return on average tangible common equity(1)(2) 4.07 % 4.69 % 15.05 % Net interest margin(2) 3.32 % 3.41 % 3.91 % Cost of total deposits(2) 1.19 % 1.01 % 0.31 % Efficiency ratio 83.0 % 84.2 % 61.1 % Noninterest expense to average total assets(2) 2.29 % 2.37 % 2.39 % Total assets $     7,091,283 $     7,174,957 $     7,236,806 Loans receivable, net $     4,378,429 $     4,287,628 $     4,083,003 Total deposits $     5,532,327 $     5,599,872 $     5,789,022 Loan to deposit ratio(3) 80.0 % 77.4 % 71.3 % Book value per share $            24.43 $            24.44 $            23.53 Tangible book value per share(1) $            17.36 $            17.40 $            16.48 (1) See Non-GAAP Financial Measures section herein. (2) Annualized. (3) Loans receivable divided by total deposits. Balance Sheet Total investment securities decreased $143.3 million, or 7.6%, to $1.73 billion at March 31, 2024 from $1.87 billion at December 31, 2023. As previously discussed, the Company sold $144.0 million in investment securities at a loss of $10.0 million during the first quarter of 2024. These funds were redeployed in investment purchases of $33.1 million, loans and interest earning deposits. The following table summarizes the Company's investment securities at the dates indicated: March 31, 2024 December 31, 2023 $ Change in Carrying Value Amortized Cost Net Unrealized Gain (Loss) Fair Value Amortized Cost Net Unrealized Loss Fair Value (Dollars in thousands) Investment securities available for sale: U.S. government and agency securities $    16,001 $         (2,584) $    13,417 $    16,047 $         (2,297) $    13,750 $             (333) Municipal securities 83,788 (11,833) 71,955 92,231 (12,706) 79,525 (7,570) Residential CMO and MBS(1) 519,152 (42,410) 476,742 555,518 (43,469) 512,049 (35,307) Commercial CMO and MBS(1) 443,537 (34,069) 409,468 538,910 (34,652) 504,258 (94,790) Corporate obligations 11,658 (467) 11,191 7,745 (132) 7,613 3,578 Other asset-backed securities 13,653 84 13,737 17,336 (178) 17,158 (3,421) Total $  1,087,789 $       (91,279) $  996,510 $  1,227,787 $       (93,434) $  1,134,353 $     (137,843) March 31, 2024 December 31, 2023 $ Change in Carrying Value Amortized Cost Net Unrecognized Loss Fair Value Amortized Cost Net Unrecognized Loss Fair Value (Dollars in thousands) Investment securities held to maturity: U.S. government and agency securities $  151,110 $       (29,980) $  121,130 $  151,075 $       (27,701) $ 123,374 $                 35 Residential CMO and MBS(1) 262,359 (17,439) 244,920 267,204 (14,101) 253,103 (4,845) Commercial CMO and MBS(1) 320,537 (37,586) 282,951 321,163 (35,190) 285,973 (626) Total $  734,006 $       (85,005) $  649,001 $  739,442 $       (76,992) $ 662,450 $         (5,436) Total investment securities $  1,821,795 $     (176,284) $  1,645,511 $  1,967,229 $     (170,426) $  1,796,803 (1) U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations. Loans receivable increased $92.5 million, or 2.1%, to $4.43 billion at March 31, 2024 from $4.34 billion at December 31, 2023. New loans funded in the first quarter of 2024 and fourth quarter of 2023 totaled $101.7 million and $113.4 million, respectively. Loan prepayments decreased slightly during the first quarter of 2024 to $39.1 million, compared to $42.8 million during the fourth quarter of 2023. Commercial and industrial loans increased $42.1 million, or 5.9%, due primarily to new loan production of $37.4 million during the first quarter of 2024 and advances on outstanding commitments. Commercial and multifamily construction loans increased $36.7 million, or 10.9%, due primarily to advances on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated: March 31, 2024 December 31, 2023 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Commercial business: Commercial and industrial $       760,391 17.2 % $       718,291 16.6 % $         42,100 5.9 % Owner-occupied commercial real estate ("CRE") 951,583 21.5 958,620 22.1 (7,037) (0.7) Non-owner occupied CRE 1,702,665 38.4 1,697,574 39.1 5,091 0.3 Total commercial business 3,414,639 77.1 3,374,485 77.8 40,154 1.2 Residential real estate 386,357 8.7 375,342 8.7 11,015 2.9 Real estate construction and land development: Residential 84,081 1.9 78,610 1.8 5,471 7.0 Commercial and multifamily 372,532 8.4 335,819 7.7 36,713 10.9 Total real estate construction and land development 456,613 10.3 414,429 9.5 42,184 10.2 Consumer 170,556 3.9 171,371 4.0 (815) (0.5) Loans receivable 4,428,165 100.0 % 4,335,627 100.0 % 92,538 2.1 Allowance for credit losses on loans (49,736) (47,999) (1,737) 3.6 Loans receivable, net $    4,378,429 $    4,287,628 $         90,801 2.1 % Total deposits decreased $67.5 million, or 1.2%, to $5.53 billion at March 31, 2024 from $5.60 billion at December 31, 2023. Certificates of deposit increased $86.7 million, or 12.5%, to $779.7 million at March 31, 2024 from $693.0 million at December 31, 2023 primarily due to transfers from non-maturity deposit accounts as customers moved balances to higher yielding accounts. The following table summarizes the Company's total deposits at the dates indicated: March 31, 2024 December 31, 2023 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $    1,637,111 29.5 % $    1,715,847 30.7 % $        (78,736) (4.6) % Interest bearing demand deposits 1,552,584 28.1 1,608,745 28.7 (56,161) (3.5) Money market accounts 1,099,983 19.9 1,094,351 19.5 5,632 0.5 Savings accounts 462,974 8.4 487,956 8.7 (24,982) (5.1) Total non-maturity deposits 4,752,652 85.9 4,906,899 87.6 (154,247) (3.1) Certificates of deposit 779,675 14.1 692,973 12.4 86,702 12.5 Total deposits $    5,532,327 100.0 % $    5,599,872 100.0 % $        (67,545) (1.2) % Total borrowings were $500 million at March 31, 2024 and December 31, 2023. All borrowings were from the Federal Reserve Bank ("FRB") Bank Term Funding Program. Borrowings totaling $400 million mature in May 2024 while the remaining $100 million mature in January 2025. Total stockholders' equity decreased $5.7 million, or 0.7%, to $847.6 million at March 31, 2024 compared to $853.3 million at December 31, 2023 due primarily to $8.1 million in dividends paid to common shareholders and $6.1 million in common stock repurchases offset partially by $5.7 million of net income recognized for the quarter and a $1.8 million decrease in accumulated other comprehensive loss, net. The Company and Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as "well-capitalized." The following table summarizes capital ratios for the Company at the dates indicated: March 31, 2024 December 31,2023 Change Stockholders' equity to total assets 12.0 % 11.9 % 0.1 % Tangible common equity to tangible assets (1) 8.8 8.8 — Common equity tier 1 capital ratio (2) 12.6 12.9 (0.3) Leverage ratio (2) 10.0 10.0 — Tier 1 capital ratio (2) 13.0 13.3 (0.3) Total capital ratio (2) 13.9 14.1 (0.2) (1)  See Non-GAAP Financial Measures section herein. (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 1.12% at March 31, 2024 compared to 1.11% at December 31, 2023. During both the first quarter of 2024 and the fourth quarter of 2023, the Company recorded a $1.7 million provision for credit losses on loans. The provision for credit losses on loans during the first quarter of 2024 was primarily driven by loan growth during the quarter. During the first quarter of 2024, the Company recorded a $312,000 reversal of provision for credit losses on unfunded commitments compared to a $246,000 reversal of provision for credit losses on unfunded commitments during the fourth quarter of 2023. The reversal of provision for credit losses on unfunded commitments during the first quarter of 2024 was due primarily to a $50.0 million decrease in the unfunded exposure on construction loans. The following table provides detail on the changes in the ACL on loans and the ACL on unfunded, and the related provision for (reversal of) credit losses for the periods indicated: As of or for the Quarter Ended March 31, 2024 December 31, 2023 March 31, 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 $ 47,999 $      1,288 $ 49,287 $ 46,947 $      1,534 $ 48,481 $ 42,986 $      1,744 $ 44,730 Provision for (reversal of) credit losses 1,704 (312) 1,392 1,670 (246) 1,424 1,713 112 1,825 Net recoveries (net charge-offs) 33 — 33 (618) — — (618) (230) — (230) Balance, end of period $ 49,736 $          976 $ 50,712 $ 47,999 $      1,288 $ 49,287 $ 44,469 $      1,856 $ 46,325 Credit Quality The percentage of classified loans to loans receivable was unchanged at March 31, 2024 and December 31, 2023. Classified loans include loans rated substandard or worse. Total loans designated as special mention increased by $22.2 million to $102.2 million at March 31, 2024, compared to $80.0 million at December 31, 2023. This increase was primarily due to the downgrade of a $15.1 million commercial and multifamily construction loan and a $5.5 million commercial and industrial loan from pass to special mention. The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated: March 31, 2024 December 31, 2023 Balance % of Total Balance % of Total (Dollars in thousands) Risk Rating: Pass $    4,255,750 96.1 % $    4,185,893 96.6 % Special Mention 102,232 2.3 79,977 1.8 Substandard 70,183 1.6 69,757 1.6 Total $    4,428,165 100.0 % $    4,335,627 100.0 % Nonaccrual loans to loans receivable was 0.11% and 0.10% at March 31, 2024 and December 31, 2023, respectively.  Changes in nonaccrual loans during the periods indicated were as follows: Quarter Ended March 31, 2024 December 31,2023 March 31,2023 (In thousands) Balance, beginning of period $               4,468 $               3,065 $               5,906 Additions 593 2,149 468 Net principal payments and transfers to accruing status (269) (333) (909) Payoffs — (413) (650) Balance, end of period $               4,792 $               4,468 $               4,815 Liquidity Total liquidity sources available at March 31, 2024 were $2.50 billion. This includes internal as well as external sources of liquidity. The Company has access to FHLB advances and the FRB Discount Window. The Company's available liquidity sources at March 31, 2024 represented a coverage ratio of 45.2% of total deposits and 122.3% of estimated uninsured deposits. The following table summarizes the Company's available liquidity: Quarter Ended March 31, 2024 December 31,2023 (Dollars in thousands) FRB borrowing availability $              71,300 $           319,492 FHLB borrowing availability(1) 1,384,631 1,417,518 Unencumbered investment securities available for sale(2) 708,378 756,258 Cash and cash equivalents 189,647 224,973 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total available liquidity $        2,498,956 $        2,863,241 (1) Includes FHLB total borrowing availability of $1.38 billion at March 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.23 billion. (2) Investment securities available for sale at fair value. Net Interest Income and Net Interest Margin Net interest income decreased $2.3 million, or 4.3%, during the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to an increase of $2.4 million in interest expense. Net interest margin decreased nine basis points to 3.32% during the first quarter of 2024 from 3.41% during the fourth quarter of 2023. The cost of interest bearing deposits increased 22 basis points to 1.70% for the first quarter of 2024 from 1.48% ...