HERITAGE FINANCIAL CORP /WA/ MANAGEMENT REPORT OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion is intended to assist in understanding the financial
condition and results of operations of the Company as of and for the three and
nine months ended September 30, 2022. The information contained in this section
should be read together with the unaudited Condensed Consolidated Financial
Statements and the accompanying Notes included herein, the Forward-Looking
Statements included herein and the December 31, 2021 audited Consolidated
Financial Statements and the accompanying Notes included in our 2021 Annual Form
10-K.


Overview

Heritage Financial Corporation is a bank holding company which primarily engages
in the business activities of our wholly-owned financial institution subsidiary,
Heritage Bank. We provide financial services to our local communities with an
ongoing strategic focus on our commercial banking relationships, market
expansion and asset quality. The Company's business activities generally are
limited to passive investment activities and oversight of its investment in the
Bank. Accordingly, the information set forth in this report relates primarily to
the Bank's operations.

Our business consists primarily of commercial lending and deposit relationships
with small to medium sized businesses and their owners in our market areas and
attracting deposits from the general public. We also make real estate
construction and
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land loans and consumer loans. We also originate residential real estate loans for sale or for investment purposes on single family properties located primarily in our markets.

Our core profitability depends primarily on our net interest income. Net
interest income is the difference between interest income, which is the income
that we earn on interest earning assets, comprised primarily of loans and
investment securities, and interest expense, which is the amount we pay on our
interest bearing liabilities, consisting primarily of deposits. Management
manages the repricing characteristics of the Company's interest earning assets
and interest bearing liabilities to protect net interest income from changes in
market interest rates and changes in the shape of the yield curve. Like most
financial institutions, our net interest income is significantly affected by
general and local economic conditions, particularly changes in market interest
rates including most recently significant changes as a result of inflation, and
by governmental policies and actions of regulatory agencies. Net interest income
is additionally affected by changes in the volume and mix of interest earning
assets, interest earned on these assets, the volume and mix of interest bearing
liabilities and interest paid on these liabilities.

Our net income is affected by many factors, including the provision for credit
losses on loans. The provision for credit losses on loans is dependent on
changes in the loan portfolio and management's assessment of the collectability
of the loan portfolio as well as prevailing economic and market conditions.
Management believes that the ACL on loans reflects the amount that is
appropriate to provide for current expected credit losses in our loan portfolio
based on our methodology.

Net income is also affected by noninterest income and noninterest expense.
Noninterest income primarily consists of service charges and other fees, card
revenue and other income. Noninterest expense consists primarily of compensation
and employee benefits, occupancy and equipment, data processing and professional
services. Compensation and employee benefits consist primarily of the salaries
and wages paid to our employees, payroll taxes, expenses for retirement and
other employee benefits. Occupancy and equipment expenses are the fixed and
variable costs of buildings and equipment and consists primarily of lease
expenses, depreciation charges, maintenance and utilities. Data processing
consists primarily of processing and network services related to the Bank's core
operating system, including the account processing system, electronic payments
processing of products and services, internet and mobile banking channels and
software-as-a-service providers. Professional services consists primarily of
third-party service providers such as auditors, consultants and lawyers.

Results of operations may also be significantly affected by general and local
economic and competitive conditions, governmental policies and actions of
regulatory authorities, including changes resulting from the COVID-19 Pandemic
and inflation and the governmental actions taken to address these issues. Net
income is also impacted by growth of operations through organic growth or
acquisitions.

Response to the COVID-19 pandemic

The Company maintains its commitment to supporting its community and customers
during the COVID-19 Pandemic and remains focused on keeping its employees safe
and the Bank running effectively to serve its customers. The Bank will continue
to monitor branch access and occupancy levels in relation to cases and close
contact scenarios and follow governmental restrictions and public health
authority guidelines.


Results of Operations

Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

Net income was $21.0 million, or $0.59 per diluted common share, for the three
months ended September 30, 2022 compared to $20.6 million, or $0.58 per diluted
common share, for the same period in 2021. Net income increased $398,000, or
1.9%, due primarily to an increase in interest earned on interest earning assets
following increases in market interest rates partially offset by a $1.9 million
provision for credit losses, compared to a $3.1 million reversal of provision
for credit losses for the three months ended September 30, 2021 and increased
noninterest expense. The Company's efficiency ratio was 58.66% for the three
months ended September 30, 2022 compared to 62.35% for the same period in 2021.


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year.

Net income was $59.3 million, or $1.67 per diluted common share, for the nine
months ended September 30, 2022 compared to $78.6 million, or $2.18 per diluted
common share, for the nine months ended September 30, 2021. Net income decreased
$19.3 million, or 24.6%, due primarily to a lower reversal of provision for
credit losses. The Company's efficiency ratio was 61.67% for the nine months
ended September 30, 2022 compared to 60.66% for the same period in 2021.


Average Balances, Yields and Rates Paid

The following table provides relevant net interest income information for the periods indicated:

Three months completed September 30,

                                                          2022                                                             2021                                                           Change
                                                          Interest             Average                                    Interest             Average                                     Interest             Average
                                     Average               Earned/             Yield/                Average               Earned/              Yield/                Average               Earned/             Yield/
                                   Balance(1)               Paid                Rate               Balance(1)               Paid                 Rate               Balance(1)               Paid                Rate
                                                                                                                  (Dollars in thousands)
Interest Earning Assets:


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Three months completed September 30,

                                                          2022                                                       2021                                                     Change
                                                        Interest            Average                                Interest            Average                               Interest            Average
                                     Average             Earned/            Yield/              Average             Earned/            Yield/              Average            Earned/            Yield/
                                    Balance(1)            Paid               Rate              Balance(1)            Paid               Rate             Balance(1)            Paid               Rate
                                                                                                           (Dollars in thousands)
Loans receivable, net (2)(3)      $ 3,859,839          $ 43,847                4.51  %       $ 4,005,585          $ 46,863                4.64  %       $ (145,746)         $ (3,016)              (0.13) %
Taxable securities                  1,868,900            12,362                2.62              893,374             4,711                2.09             975,526             7,651                0.53
Nontaxable securities (3)             133,022               892                2.66              157,907               931                2.34             (24,885)              (39)               0.32
Interest earning deposits             730,600             4,009                2.18            1,417,661               537                0.15            (687,061)            3,472                2.03
Total interest earning assets       6,592,361            61,110                3.68  %         6,474,527            53,042                3.25  %          117,834             8,068                0.43  %
Noninterest earning assets            775,375                                                    740,433                                                    34,942
Total assets                      $ 7,367,736                                                $ 7,214,960                                                $  152,776
Interest Bearing Liabilities:
Certificates of Deposit           $   297,786          $    290                0.39  %       $   365,278          $    407                0.44  %       $  (67,492)         $   (117)              (0.05) %
Savings accounts                      654,697                99                0.06              609,818                90                0.06              44,879                 9                   -
Interest bearing demand and money
market accounts                     3,065,007             1,089                0.14            2,881,567               947                0.13             183,440               142                0.01
Total interest bearing deposits     4,017,490             1,478                0.15            3,856,663             1,444                0.15             160,827                34                   -
Junior subordinated debentures         21,356               312                5.80               21,060               184                3.47                 296               128                2.33
Securities sold under agreement
to repurchase                          42,959                34                0.31               52,197                36                0.27              (9,238)               (2)               0.04

Total interest bearing
liabilities                         4,081,805             1,824                0.18  %         3,929,920             1,664                0.17  %          151,885               160                0.01  %
Noninterest bearing demand
deposits                            2,356,688                                                  2,313,145                                                

43,543

Other noninterest bearing
liabilities                           118,191                                                    116,187                                                

2004

Stockholders' equity                  811,052                                                    855,708                                                

(44,656)

Total liabilities and
stock-holders' equity             $ 7,367,736                                                $ 7,214,960                                                $  152,776
Net interest income and spread                         $ 59,286                3.50  %                            $ 51,378                3.08  %                           $  7,908                0.42  %
Net interest margin                                                            3.57  %                                                    3.15  %                                                   0.42  %


(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 $857,000
and $7.8 million for the three months ended September 30, 2022 and 2021,
respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a
tax-equivalent basis.

Overview of net interest income and margin

One of the Company's key sources of earnings is net interest income. There are
several factors that affect net interest income, including, but not limited to,
the volume, pricing, mix and maturity of interest earning assets and interest
bearing liabilities; the volume of noninterest earning assets, noninterest
bearing demand deposits, other noninterest bearing liabilities and stockholders'
equity; market interest rate fluctuations; and asset quality.

The following table provides the changes in net interest income for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 due to changes in average asset and liability balances (volume), changes in
average rates (rate) and changes attributable to the combined effect of volume
and interest rates allocated proportionately to the absolute value of changes
due to volume and changes due to interest rates:

                                             Increase (Decrease) Due to Changes In:
                                       Volume                Yield/Rate        Total        % Change
                                              (Dollars in thousands)
Interest Earning Assets:
Loans receivable, net       $      (1,678)                  $    (1,338)     $ (3,016)        (6.4) %
Taxable securities                  6,206                         1,445         7,651        162.4
Nontaxable securities                (158)                          119           (39)        (4.2)
Interest earning deposits            (382)                        3,854         3,472        646.6
Total interest income       $       3,988                   $     4,080      $  8,068         15.2  %


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Increase (decrease) due to changes in:

                                                           Volume              Yield/Rate           Total              % Change
                                                                      (Dollars in thousands)
Interest Bearing Liabilities:
Certificates of deposit                               $         (70)         $       (47)         $  (117)                 (28.7) %
Savings accounts                                                  7                    2                9                   10.0
Interest bearing demand and money market accounts                62                   80              142                   15.0
Total interest bearing deposits                                  (1)                  35               34                    2.4
Junior subordinated debentures                                    3                  125              128                   69.6
Securities sold under agreement to repurchase                    (7)                   5               (2)                  (5.6)

Total interest expense                                $          (5)         $       165          $   160                    9.6  %
Net interest income                                   $       3,993          $     3,915          $ 7,908                   15.4  %


Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

Net interest income increased primarily as a result of higher yields earned on
interest earning assets following increases in market interest rates as well as
an increased average balance of taxable investment securities, offset partially
by a decrease in deferred SBA PPP loan fees recognized due to a decline in the
volume of forgiven SBA PPP loans. SBA PPP interest and fee income decreased $7.8
million compared to the three months ended September 30, 2021.

Net interest margin increased due to a shift in the mix of interest-earning
assets towards higher yielding loans and taxable investment securities as well
as increased average yields on all interest earning assets, excluding the impact
from SBA PPP loans.

The following table presents the loan yield and the impacts of SBA PPP loans and
the incremental accretion on acquired loans on this financial measure for the
periods presented below:

                                                                                     Three Months Ended
                                                                        September 30,                September 30,
                                                                             2022                         2021

Loan yield (GAAP)                                                                 4.51  %                        4.64  %
Exclude impact from SBA PPP loans                                                (0.02)                         (0.38)
Exclude impact from incremental accretion on acquired loans                      (0.05)                         (0.07)

Loan yield, excluding SBA PPP loans and incremental accretion on acquired loans (non-GAAP) (1)

                                                     4.44  %                        4.19  %


(1) For more information, see the “Reconciliations of Non-GAAP Measures” section below.

There was no impact on loan performance from interest and fee recoveries on loans classified as accrued during the three months ended September 30, 2022
against two basis points during the same period in 2021.

Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year

The following table provides relevant net interest income information for the periods indicated:

Nine month period ended September 30,

                                                       2022                                                        2021                                                       Change
                                                      Interest            Average                                 Interest            Average                                Interest            Average
                                  Average             Earned/             Yield/              Average             Earned/             Yield/              Average            Earned/             Yield/
                                 Balance(1)             Paid               Rate              Balance(1)             Paid               Rate             Balance(1)             Paid               Rate
                                                                                                          (Dollars in thousands)
Interest Earning Assets:
Loans receivable, net (2)(3)   $ 3,815,387          $ 125,762                4.41  %       $ 4,297,875          $ 147,137                4.58  %       $ (482,488)         $ (21,375)              (0.17) %
Taxable securities               1,532,450             25,972                2.27              789,691             12,295                2.08             742,759             13,677                0.19
Nontaxable securities (3)          138,904              2,645                2.55              160,748              2,836                2.36             (21,844)              (191)               0.19
Interest earning deposits        1,146,183              7,057                0.82            1,034,690                975                0.13             111,493              6,082                0.69
Total interest earning assets    6,632,924            161,436                3.25  %         6,283,004            163,243                3.47  %          349,920             (1,807)              (0.22) %
Noninterest earning assets         762,877                                                     749,781                                                     13,096
Total assets                   $ 7,395,801                                                 $ 7,032,785                                                 $  363,016


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Nine month period ended September 30,

                                                           2022                                                        2021                                                      Change
                                                          Interest            Average                                 Interest            Average                               Interest            Average
                                      Average             Earned/             Yield/              Average             Earned/             Yield/              Average            Earned/            Yield/
                                     Balance(1)             Paid               Rate              Balance(1)             Paid               Rate             Balance(1)            Paid               Rate
                                                                                                             (Dollars in thousands)
Interest Bearing Liabilities:
Certificates of Deposit            $   318,547          $     952                0.40  %       $   379,885          $   1,447                0.51  %       $  (61,338)         $   (495)              (0.11) %
Savings accounts                       651,292                274                0.06              587,358                274                0.06              63,934                 -                   -
Interest bearing demand and money
market accounts                      3,066,229              3,089                0.13            2,817,353              2,975                0.14             248,876               114               (0.01)
Total interest bearing deposits      4,036,068              4,315                0.14            3,784,596              4,696                0.17             251,472              (381)              (0.03)
Junior subordinated debentures          21,286                745                4.68               20,987                557                3.55                 299               188                1.13
Securities sold under agreement to
repurchase                              47,057                 98                0.28               45,221                109                0.32               1,836               (11)              (0.04)

Total interest bearing liabilities   4,104,411              5,158                0.17  %         3,850,804              5,362                0.19  %          253,607              (204)              (0.02) %
Noninterest bearing demand
deposits                             2,355,285                                                   2,227,281                                              

128,004

Other noninterest bearing
liabilities                            113,534                                                     115,098                                                     (1,564)
Stockholders' equity                   822,571                                                     839,602                                                    (17,031)
Total liabilities and
stock-holders' equity              $ 7,395,801                                                 $ 7,032,785                                                 $  363,016
Net interest income and spread                          $ 156,278                3.08  %                            $ 157,881                3.28  %                           $ (1,603)              (0.20) %
Net interest margin                                                              3.15  %                                                     3.36  %                                                  (0.21) %


(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 $6.7
million and $23.2 million for the nine months ended September 30, 2022 and 2021,
respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a
tax-equivalent basis.

The following table provides the changes in net interest income for the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 due to changes in average asset and liability balances (volume), changes in
average rates (rate) and changes attributable to the combined effect of volume
and interest rates allocated proportionately to the absolute value of changes
due to volume and changes due to interest rates:

                                                                           

Increase (decrease) due to changes in:

                                                           Volume               Yield/Rate            Total               % Change
                                                                                   (Dollars in thousands)
Interest Earning Assets:
Loans receivable, net                                 $      (16,057)         $    (5,318)         $ (21,375)                 (14.5) %
Taxable securities                                            12,500                1,177             13,677                  111.2
Nontaxable securities                                           (405)                 214               (191)                  (6.7)
Interest earning deposits                                        116                5,966              6,082                  623.8
Total interest income                                 $       (3,846)         $     2,039          $  (1,807)                  (1.1) %
Interest Bearing Liabilities:
Certificates of deposit                               $         (212)         $      (283)         $    (495)                 (34.2) %
Savings accounts                                                  28                  (28)                 -                      -
Interest bearing demand and money market accounts                255                 (141)               114                    3.8
Total interest bearing deposits                                   71                 (452)              (381)                  (8.1)
Junior subordinated debentures                                     8                  180                188                   33.8
Securities sold under agreement to repurchase                      4                  (15)               (11)                 (10.1)

Total interest expense                                $           83          $      (287)         $    (204)                  (3.8) %
Net interest income                                   $       (3,929)         $     2,326          $  (1,603)                  (1.0) %


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year

Net interest income decreased due primarily to a decrease in deferred SBA PPP
loan fees recognized due to a decline in the volume of forgiven SBA PPP loans,
offset partially by a higher average balance of taxable investment securities
and higher
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returns earned on taxable securities and interest-bearing deposits as a result of increases in market interest rates. SBA PPP interest and fee income declined
$22.0 million compared to the nine months ended September 30, 2021.

Net interest margin decreased due primarily to the change in the mix of total
interest earning assets into a higher proportion of lower yielding investment
securities and interest earning deposits.

The following table presents the loan yield and the impacts of SBA PPP loans and
the incremental accretion on acquired loans on this financial measure for the
periods presented below:

                                                                                  Nine Months Ended
                                                                                    September 30,
                                                                            2022                      2021
Loan yield (GAAP)                                                                4.41  %                  4.58  %
Exclude impact from SBA PPP loans                                               (0.13)                   (0.17)
Exclude impact from incremental accretion on acquired loans                     (0.04)                   (0.08)

Loan yield, excluding SBA PPP loans and incremental accretion on acquired loans (non-GAAP) (1)

                                                    4.24  %                  4.33  %


(1) For more information, see “Reconciliations of Non-GAAP Measures”.

The impact on loan performance of interest and fee recoveries on loans classified as non-accrued was four basis points in the nine months ended
September 30, 2022 compared to nine basis points during the same period in 2021.

Overview of allowance for credit losses

The aggregate of the provision for credit losses on loans and the provision for
credit losses on unfunded commitments is presented on the unaudited Condensed
Consolidated Statements of Income as the provision for (reversal of) credit
losses. The ACL on unfunded commitments is included on the unaudited Condensed
Consolidated Statements of Financial Condition within accrued expenses and other
liabilities.

Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

The following table presents the provision for (reversal of) credit losses for
the periods indicated:

                                                Three Months Ended
                                                  September 30,
                                             2022                2021              Change               % Change
                                                                    (Dollars in thousands)
Provision for (reversal of) credit
losses on loans                          $    1,919          $  (2,852)         $   4,771                   (167.3) %
Provision for (reversal of) credit
losses on unfunded commitments                   26               (297)               323                   (108.8)
Provision for (reversal of) credit
losses                                   $    1,945          $  (3,149)         $   5,094                   (161.8) %


The allowance for credit losses on loans recorded during the three months ended September 30, 2022 was primarily due to an increase related to outstanding loan growth, partially offset by a reduction in PCA on loans individually assessed for loss.

The reversal of provision for credit losses on loans and unfunded commitments
recognized during the three months ended September 30, 2021 was due primarily to
continued improvements in the economic forecast at September 30, 2021 as
compared to the forecast at June 30, 2021.


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year

The following table presents the provision for credit losses for the periods
indicated:

                                                Nine Months Ended
                                                  September 30,
                                             2022               2021              Change           Percentage Change
                                                                    (Dollars in thousands)
Reversal of provision for credit losses
on loans                                 $  (1,252)         $ (21,808)         $  20,556                      (94.3) %
Reversal of provision for credit losses
on unfunded commitments                     (1,584)            (2,527)               943                      (37.3)

Reversal of provision for credit losses $(2,836) ($24,335)

    $  21,499                      (88.3) %


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The reversal of provision for credit losses recognized during the nine months
ended September 30, 2022 was due primarily to a reduction of loans individually
evaluated for losses and their related ACL.

The reversal of provision for credit losses recognized during the nine months
ended September 30, 2021 was due substantially to continued improvements in the
economic forecast at September 30, 2021 as compared to the forecast at December
31, 2020.


Noninterest Income Overview

Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

The following table presents the evolution of the main components of non-interest income for the periods indicated:

                                         Three Months Ended
                                            September 30,
                                          2022            2021        Change      % Change
                                                    (Dollars in thousands)

Service charges and other charges $2,688 $2,400 $288

        12.0  %
Card revenue                             2,365            2,150         215         10.0

Gain on sale of loans, net                 133              765        (632)       (82.6)
Interest rate swap fees                     78              126         (48)       (38.1)
Bank owned life insurance income           723              647          76 

11.7

Gain on sale of other assets, net          265              942        (677)       (71.9)
Other income                             1,201            1,198           3          0.3
Total noninterest income            $    7,453          $ 8,228      $ (775)        (9.4) %


Noninterest income decreased due primarily to reduced gain on sale of loans, net
as sales volume of secondary market mortgage loans declined and secondarily due
to lower gain on sale of other assets, net due to a higher gain on sale of
branches held for sale recognized during the three months ended September 30,
2021.


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year

The following table presents the evolution of the main components of non-interest income for the periods indicated:

                                                   Nine Months Ended
                                                     September 30,
                                                  2022           2021         Change       % Change
                                                              (Dollars in thousands)
  Service charges and other fees               $   7,739      $  6,728      

$1,011 15.0%

  Card revenue                                     6,774         6,216      

558 9.0

  Gain on sale of investment securities, net           -            29           (29)      (100.0)
  Gain on sale of loans, net                         593         3,138        (2,545)       (81.1)
  Interest rate swap fees                            383           487          (104)       (21.4)
  Bank owned life insurance income                 3,182         2,020      

1,162 57.5

  Gain on sale of other assets, net                  469         1,688        (1,219)       (72.2)
  Other income                                     3,867         4,470          (603)       (13.5)
  Total noninterest income                     $  23,007      $ 24,776      $ (1,769)        (7.1) %


Noninterest income decreased due primarily to reduced gain on sale of loans, net
as sales volume of secondary market mortgage loans declined and secondarily due
to lower gain on sale of other assets, net due to a higher gain on sale of
branches held for sale recognized during the nine months ended September 30,
2021. The decrease was offset partially by an increase in bank owned life
insurance income due to the recognition of a death benefit of $1.0 million
during the nine months ended September 30, 2022 as well as increases in service
charges and other fees and card revenue reflecting increased customer
transactions as businesses reopened in our market areas.


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Overview of non-interest expenses

Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

The following table shows the changes in the main components of non-interest expenses for the periods indicated:

                                           Three Months Ended
                                             September 30,
                                           2022           2021        Change       % Change
                                                      (Dollars in thousands)
Compensation and employee benefits     $   24,206      $ 21,963      $ 2,243         10.2  %
Occupancy and equipment                     4,422         4,373           49          1.1
Data processing                             4,185         4,029          156          3.9
Marketing                                     358           486         (128)       (26.3)
Professional services                         639           776         (137)       (17.7)
State/municipal business and use tax          963         1,071         (108)       (10.1)
Federal deposit insurance premium             500           550          

(50) (9.1)

Amortization of intangible assets             671           758          (87)       (11.5)
Other expense                               3,203         3,160           43          1.4
Total noninterest expense              $   39,147      $ 37,166      $ 1,981          5.3  %


Noninterest expense increased due primarily to an increase in salaries and wages
effective July 1, 2022 due to upward market pressure and an increase in accrual
for incentive compensation.


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year

The following table shows the changes in the main components of non-interest expenses for the periods indicated:

                                                Nine Months Ended
                                                  September 30,
                                               2022           2021         Change       % Change
                                                           (Dollars in thousands)

Compensation and Benefits $67,236 $65,967 $1,269 1.9%

     Occupancy and equipment                   12,924         12,918       
    6            -
     Data processing                           12,431         11,839          592          5.0
     Marketing                                    968          1,566         (598)       (38.2)
     Professional services                      1,867          3,083       (1,216)       (39.4)

State/municipal business and use tax 2,626 3,034

(408) (13.4)

Federal deposit insurance premium 1,525 1,478

47 3.2

Amortization of intangible assets 2,079 2,352

(273) (11.6)

     Other expense                              8,918          8,567       

351 4.1

     Total noninterest expense              $ 110,574      $ 110,804      $

(230) (0.2)%


Noninterest expense decreased due primarily to a decrease in professional
services, which was elevated during the nine months ended September 30, 2021 due
to costs associated with our participation in the SBA PPP, as well as a decrease
in marketing expenses due to less activity. This decrease was offset partially
by an increase in compensation and employee benefits due to increases in both
salaries and wages and in accrual for incentive compensation as noted above, as
well as an increase in data processing as the Bank continues to invest in its
technology platforms.


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Overview of income tax expense

Comparison of the quarter ended September 30, 2022 compared to the comparable quarter of the previous year

The following table presents income tax expense, related measures and their changes for the periods indicated:

                                  Three Months Ended
                                    September 30,
                                 2022           2021         Change       % Change
                                             (Dollars in thousands)
Income before income taxes    $ 25,647       $ 25,589       $   58           0.2  %
Income tax expense            $  4,657       $  4,997       $ (340)         (6.8) %
Effective income tax rate         18.2  %        19.5  %      (1.3) %       (6.7) %


Income tax expense decreased due primarily to a lower effective tax rate as a
result of lower estimated annual pre-tax income for the year ended December 31,
2022 as compared to year ended December 31, 2021, which increased the impact of
favorable permanent tax items such as tax-exempt investments, investments in
bank owned life insurance, and LIHTC.


Comparison of the nine months ended September 30, 2022 to the comparable period of the previous year.

The following table presents income tax expense and related measures and the change for the periods indicated:

                                  Nine Months Ended
                                    September 30,
                                 2022           2021           Change        % Change
                                               (Dollars in thousands)
Income before income taxes    $ 71,547       $ 96,188       $ (24,641)        (25.6) %
Income tax expense            $ 12,216       $ 17,550       $  (5,334)        (30.4) %
Effective income tax rate         17.1  %        18.2  %         (1.1) %       (6.0) %

Income tax expense also decreased primarily due to the change in pre-tax profit earned between periods and lower estimated annual pre-tax profit for the year ended December 31, 2022.

Overview of the financial situation

The table below presents a comparison of the changes in the financial position of the Company during the periods indicated:

                                            September 30,          December 31,
                                                2022                   2021                 Change                 % Change
                                                                          (Dollars in thousands)
Assets
Cash and cash equivalents                 $      407,324          $  1,723,292          $ (1,315,968)                   (76.4) %
Investment securities available for sale,
at fair value, net                             1,356,142               894,335               461,807                     51.6  %
Investment securities held to maturity,
at amortized cost, net                           773,319               383,393               389,926                    101.7  %
Loans held for sale                                    -                 1,476                (1,476)                  (100.0) %
Loans receivable, net                          3,959,206             3,773,301               185,905                      4.9  %

Premises and equipment, net                       76,683                79,370                (2,687)                    (3.4) %
Federal Home Loan Bank stock, at cost              8,916                 7,933                   983                     12.4  %
Bank owned life insurance                        121,369               120,196                 1,173                      1.0  %
Accrued interest receivable                       17,812                14,657                 3,155                     21.5  %
Prepaid expenses and other assets                230,704               183,543                47,161                     25.7  %
Other intangible assets, net                       7,898                 9,977                (2,079)                   (20.8) %
Goodwill                                         240,939               240,939                     -                        -
Total assets                              $    7,200,312          $  7,432,412          $   (232,100)                    (3.1) %


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