DEF 14A of Heritage Financial Corp /Wa/, Mar 22, 2024

DEF 14A of Heritage Financial Corp /Wa/

Filed Mar 22, 2024 · FY20230001046025-24-000072

Open on EDGAR

  1. Director Nominees

    Director Nominees

  2. Director Nominees

    | | | | | Committee Membership | | | | | Name | Age(1) | Director since | Independent | Audit & Finance | Compensation | Corporate Governance & Nominating | Risk & Technology | | Brian S. Charneski | 62 | 2000 | ✓ | Chair | | ✓ | | | Jeffrey J. Deuel | 65 | 2019 | | | | | ✓ | | Trevor D. Dryer | 45 | 2022 | ✓ | ✓ | | | ✓ | | Kimberly T. Ellwanger | 64 | 2006 | ✓ | | ✓ | Chair | | | Deborah J. Gavin | 67 | 2013 | ✓ | ✓ | | | ✓ | | Gail B. Giacobbe | 55 | 2022 | ✓ | | ✓ | | ✓ | | Jeffrey S. Lyon | 71 | 2001 | ✓ | ✓ | Chair | | | | Frederick B. Rivera | 55 | 2020 | ✓ | | ✓ | ✓ | | | Brian L. Vance | 69 | 2002 | ✓ | | | | Chair | | Ann Watson | 62 | 2012 | ✓ | | ✓ | ✓ | |

  3. Director Nominees

    (1) As of December 31, 2023.

  4. Vote Required to Approve Proposal 1: Election of Directors

    Vote Required to Approve Proposal 1: Election of Directors Our Bylaws provide for the election of directors by the majority of votes cast by shareholders in uncontested elections, which means that the number of shares voted "for" a director nominee must exceed the number of shares voted "against" such director nominee in order for the director nominee to be elected. The following are not considered votes cast: (1) a share otherwise present at the meeting but for which there is an abstention; and (2) a share otherwise present at the meeting as to which a shareholder of record gives no authority or direction (also known as a broker non-vote). The term of any director who was a director at the time of the election but does not receive sufficient votes under the majority vote standard will continue to serve as a director until terminated on the earliest to occur of: (1) 90 days after the date election results are determined; (2) the date the Board appoints a new director to fill the position; or (3) the date and time the director's resignation is effective. Our Bylaws provide that an election is considered a "contested election" if there are shareholder nominees for director pursuant to Heritage's advance notice provision and who are not withdrawn by the advance notice deadline set forth in Heritage's Articles of Incorporation, as amended. If the Board determines there is a "contested election," the election of directors will be held under a plurality standard. Under the plurality standard, the nominees who receive the highest number of votes for the directorships for which they have been nominated will be elected. Pursuant to our Articles of Incorporation, shareholders are not permitted to cumulate their votes for the election of directors. Votes may be cast for or against each nominee, or shareholders may abstain from voting. Abstentions and broker non-votes will have no effect on the outcome of the election because they are not considered votes cast. Our Board of Directors unanimously recommends that you vote FOR the election of each of its director nominees.

  5. PROPOSAL 1—ELECTION OF DIRECTORS

    PROPOSAL 1—ELECTION OF DIRECTORS Our Board of Directors currently consists of 10 directors. The 10 directors below have been nominated to serve a one-year term ending at the 2025 annual meeting of shareholders, or when their respective successors have been duly elected and qualified. The table below sets forth information regarding each director of Heritage standing for election, including his or her age, position and term of office. Each nominee currently serves as a director and has consented to being named in this Proxy Statement and has agreed to serve if elected. If a nominee is unable to stand for election, the Board of Directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority. At this time, we are not aware of any reason why a nominee might be unable to serve if elected. The Board of Directors recommends you vote FOR the election of each of the nominees in the table below.

  6. PROPOSAL 1—ELECTION OF DIRECTORS

    | Name | Age(1) | Position(s) Held with Heritage | Director Since | Term to Expire(2) | | Brian S. Charneski | 62 | Director | 2000 | 2025 | | Jeffrey J. Deuel | 65 | Director, President & CEO | 2019 | 2025 | | Trevor D. Dryer | 45 | Director | 2022 | 2025 | | Kimberly T. Ellwanger | 64 | Director | 2006 | 2025 | | Deborah J. Gavin | 67 | Director | 2013 | 2025 | | Gail B. Giacobbe | 55 | Director | 2022 | 2025 | | Jeffrey S. Lyon | 71 | Director | 2001 | 2025 | | Frederick B. Rivera | 55 | Director | 2020 | 2025 | | Brian L. Vance | 69 | Board Chair | 2002 | 2025 | | Ann Watson | 62 | Director | 2012 | 2025 |

  7. PROPOSAL 1—ELECTION OF DIRECTORS

    (1) As of December 31, 2023. (2) Assuming re-election.

  8. Business Experience of Nominees for Reelection

    Business Experience of Nominees for Reelection The business experience of each nominee of Heritage for at least the past five years and the experience, qualifications, attributes, skills and areas of expertise of each director that led to the conclusion that the person should serve as a director of Heritage is set forth below. All nominees have held their present positions for at least five years unless otherwise indicated and none of the nominees serve as a director of a public company board other than Heritage.

  9. Business Experience of Nominees for Reelection

    | BRIAN S. CHARNESKI | | DIRECTOR SINCE 2000 | | | Biographical Information: Brian S. Charneski is the President of L&E Bottling Company, based in Olympia, Washington, and is Chairman of Pepsi Northwest Beverages, LLC, a regional beverage manufacturing joint venture with PepsiCo, Inc. that is headquartered in Tumwater, Washington. Mr. Charneski is a director of the American Beverage Association and is also a Chairman of the Board of Directors of the Pepsi-Cola Bottlers Association, having also chaired the Association from 2005 to 2007. Mr. Charneski has extensive experience in the consumer products industry from product development, sales and marketing to manufacturing and logistics. Mr. Charneski is a past director of the Washington Center for Performing Arts, the Community Foundation of the South Sound and is a Trustee of St. Martin’s University. Mr. Charneski is a 1985 graduate of Seattle University with a Bachelor of Arts in Economics. Mr. Charneski was appointed as Lead Independent Director effective as of July 1, 2019, after having served as our Chairman since 2016. | | | Committees: • Audit and Finance (Chair) • Corporate Governance and Nominating | Qualifications: Mr. Charneski serves as Lead Independent Director and provides a depth of knowledge in corporate and regulatory matters as he is a strong advocate for the beverage industry. He brings significant financial, legal, economic, human capital management, and merger and acquisition expertise to the Board. | |

  10. Business Experience of Nominees for Reelection

    | JEFFREY J. DEUEL | | DIRECTOR SINCE 2019 | | | Biographical Information: Jeffrey J. Deuel is President and Chief Executive Officer ("CEO") of Heritage, positions he has held since July 1, 2019. Immediately prior to his appointment as President and CEO of Heritage, Mr. Deuel was the President and CEO of Heritage Bank and the President of Heritage from July 2018 to July 2019, having started at Heritage Bank in September 2010 as Executive Vice President and serving in positions of increasing importance. Prior to joining Heritage, Mr. Deuel held the position of Executive Vice President Commercial Operations with JPMorgan Chase, formerly Washington Mutual. Prior to joining Washington Mutual, Mr. Deuel was based in Philadelphia where he worked for Bank United, First Union Bank, CoreStates Bank, and First Pennsylvania Bank. During his career, Mr. Deuel has held a variety of leadership positions in commercial banking, including lending, credit administration, portfolio management, retail, corporate strategies and support services. He is past chair of the Washington Banker's Association and currently serves on the board of the Oregon Bankers Association and Pacific Coast Banking School. Mr. Deuel earned his Bachelor’s degree at Gettysburg College. | | | Committees: • Risk and Technology | Qualifications: Mr. Deuel provides significant executive leadership skills and banking experience as well as strategic focus and vision to the Company. | |

  11. Business Experience of Nominees for Reelection

    | TREVOR D. DRYER | | DIRECTOR SINCE 2022 | | | Biographical Information: Trevor D. Dryer is the Director, Co-Founder and CEO of Carbon Title, a software company that is helping decarbonize the real estate industry. He was previously the CEO and Director of Mirador from 2014 to 2018. Mirador was a company he co-founded to provide small businesses with the digital platform to access reasonably-priced loans from banks and credit unions. Mirador was acquired by CUNA Mutual in 2018, and he remained on as CEO through early 2020 to facilitate the integration. After leaving CUNA Mutual, Mr. Dryer joined Serent Capital, a software-focused private equity firm, as a senior vice president on its growth team. During his tenure, Mr. Dryer served on the firm’s investment committee and worked with a variety of portfolio companies on corporate strategy and implementing processes to scale sales, customer success and other functions. He also serves on the board of Qualtik, a venture-backed software company and previously was the Executive Chair of Zingo, a startup that was sold to Credit Sesame in 2021. Mr. Dryer is a former attorney at Munger, Tolles & Olson as well as a judicial clerk on the U.S. Court of Appeals for the Ninth Circuit. Mr. Dryer earned a Juris Doctor degree from Stanford Law School. He attained a Bachelor of Arts degree in History and Literature from Harvard University, magna cum laude. | | | Committees: • Audit and Finance • Risk and Technology | Qualifications: Mr. Dryer brings significant technical and entrepreneurial expertise to the Board, which is complemented by his legal expertise and executive leadership skills. | |

  12. Business Experience of Nominees for Reelection

    | KIMBERLY T. ELLWANGER | | DIRECTOR SINCE 2006 | | | Biographical Information: Kimberly T. Ellwanger was Senior Director of Corporate Affairs and Associate General Counsel at Microsoft Corporation of Redmond, Washington from 1991 to 1999. She led Microsoft in developing a corporate presence in government, industry and community affairs including opening a Washington, D.C. office and developing a network of state and local government affairs representation. Prior to joining Microsoft, Ms. Ellwanger was a Partner at Perkins Coie in Seattle, Washington, where her legal practice included state and local tax planning, tax litigation, bankruptcy, general business and corporate advice and transactions. She has been involved in numerous civic and professional activities including serving on the Boards of the Northwest Chapter of the National Association of Corporate Directors (“NACD”), past Chair of the Community Foundation of South Puget Sound, the Providence St. Peter Foundation, the South Sound YMCA, past Chair of the Washington Council on International Trade and past Vice President of the Business Software Alliance. Ms. Ellwanger graduated with high honors from the University of Washington School of Law and graduated Phi Beta Kappa from Vassar College with an honors degree in economics. She has completed NACD's comprehensive program of study to become an NACD Leadership Fellow. | | | Committees: • Compensation • Corporate Governance and Nominating (Chair) | Qualifications: Ms. Ellwanger brings significant legal expertise to the Board, which is complemented by her management and leadership skills and corporate, government and regulatory expertise. | |

  13. Business Experience of Nominees for Reelection

    | DEBORAH J. GAVIN | | DIRECTOR SINCE 2013 | | | Biographical Information: Deborah J. Gavin was employed by the Boeing Company, an aerospace company, for over 20 years and retired from the position of Vice President of Finance and Controller in 2010. Prior to her employment with Boeing, Ms. Gavin held positions as a management consultant for Deloitte (a public accounting firm), and Special Agent with the U.S. Department of Treasury. She also taught undergraduate and graduate adjunct accounting courses at City University, Seattle, Washington. Ms. Gavin is a Certified Public Accountant in the State of Washington. She holds a Bachelor of Science degree in Business from the State University of New York at Buffalo and a Master of Business Administration in Finance from Seattle University. Other board experiences include private company boards in Malaysia and China, and nonprofit organizations including the Washington Business Alliance and Snoqualmie Summit Central Ski Patrol. | | | Committees: • Audit and Finance • Risk and Technology | Qualifications: Ms. Gavin's extensive financial background, leadership skills, and depth of public company knowledge provide the Board with valuable expertise. Ms. Gavin is Heritage's designated financial expert. | |

  14. Business Experience of Nominees for Reelection

    | GAIL B. GIACOBBE | | DIRECTOR SINCE 2022 | | | Biographical Information: Gail B. Giacobbe serves as the Vice President, Product Management with Google. She is a senior technology products and services executive with extensive experience leading product organizations in enterprise, business-to-business, education and consumer software, spanning Fortune 100 companies, high growth venture capital and private equity funded enterprises. From 2019 to January 2024, she served as the Vice President, Product Management at Microsoft. From 2015 to 2019, Ms. Giacobbe served as the Vice President of Product and User Experience at GoDaddy, and led GoDaddy's Women in Tech employee resource group. Earlier in her career Ms. Giacobbe worked in a variety of product leadership roles at Microsoft, including Principal Group Product Manager for Skype, Outlook, and SharePoint. An active community leader, Ms. Giacobbe serves as a trustee for the Henry Art Gallery at the University of Washington where she sits on the governance committee. From 2011 to 2024, she served on the board of directors of JFS Seattle, where she was chair of the human resources and compensation committees. She graduated with honors from Princeton University and holds a Master of Arts in Teaching from Brown University. | | | Committees: • Compensation • Risk and Technology | Qualifications: Ms. Giacobbe brings deep expertise in digital transformation, personalization, and customer experience to the Board. Ms. Giacobbe brings extensive experience in strategic leadership, management, and cultural transformation. | |

  15. Business Experience of Nominees for Reelection

    | JEFFREY S. LYON | | DIRECTOR SINCE 2001 | | | Biographical Information: Jeffrey S. Lyon currently serves as the Chairman Emeritus of Kidder Mathews, headquartered in Seattle, Washington. He was formerly the Chairman of Kidder Mathews from 2000 to 2023. He retired as CEO for Kidder Mathews on July 1, 2020 and as Chairman on January 1, 2023. Mr. Lyon has 50 years of experience in the commercial real estate industry in the Puget Sound area. He was formerly a member of the Real Estate Advisory Board at the Runstad School of Real Estate at the University of Washington. Mr. Lyon earned a Bachelor of Arts degree in real estate and finance from the University of Oregon and is a certified member of the Commercial Investment Real Estate Institute (CCIM). He is an active community leader and currently serves on the boards of the CCIM Foundation and Evergreen Real Estate Operations companies, a private real estate company. He formerly served on the board of the Economic Development Council for Tacoma-Pierce County. | | | Committees: • Compensation (Chair) • Audit and Finance | Qualifications: Mr. Lyon provides expertise in the commercial real estate industry and has excellent entrepreneurial, strategic and executive leadership skills. | |

  16. Business Experience of Nominees for Reelection

    | FREDERICK B. RIVERA | | DIRECTOR SINCE 2020 | | | Biographical Information: Frederick (Fred) B. Rivera is the Executive Vice President, Corporate Secretary, and General Counsel for the Seattle Mariners in Seattle, Washington. Previously, Mr. Rivera was a Partner at Perkins Coie law firm in Seattle from 1998 to 2017 and the Managing Partner from 2013 to 2017 with the exception of when he served as Vice President of Internal Investigations at Fannie Mae from 2006 to 2008. He began his legal career in 1993 as a trial attorney in the Civil Rights Division of the U.S. Department of Justice. Mr. Rivera currently serves on boards of Delta Dental of Washington and OAC Services, Inc., and previously served on the board of NW Sports, LLC (ROOT Sports Network). An active community leader, Mr. Rivera has served on the boards of several non-profit organizations, including the United Way of King County (Board Chair, 2019-2020), Rainier Scholars, the Seattle Colleges Foundation, the Downtown Seattle Association, the Association of Washington Businesses, and the Washington State Leadership Board. He holds a Bachelor of Arts from California State University, Northridge and graduated from the Gonzaga School of Law. Mr. Rivera also completed the Executive Leadership Program at the Northwestern Kellogg School of Management. | | | Committees: • Compensation • Corporate Governance and Nominating | Qualifications: Mr. Rivera brings valuable legal expertise and management skills to the Board. Mr. Rivera brings knowledge of the financial services industry, which includes credit administration, management and strategic forecasting. | |

  17. Business Experience of Nominees for Reelection

    | BRIAN L. VANCE | | DIRECTOR SINCE 2002 | | | Biographical Information: Brian L. Vance has served as the Board Chair since May 2020, having served as the Executive Chair from July 2019 until May 2020. Mr. Vance was President and CEO of Heritage and CEO of Heritage Bank from 2006 and 2003, respectively, until July 2019. He served as President and CEO of Heritage Bank from 2003 until September 2012, when Jeffrey J. Deuel was promoted to President. Mr. Vance served as President and Chief Operating Officer of Heritage Bank from 1998 until 2003. Mr. Vance joined Heritage Bank in 1996 as its Executive Vice President and Chief Credit Officer. Prior to joining Heritage Bank, Mr. Vance was employed for 24 years with West One Bank, a bank with offices in Idaho, Utah, Oregon and Washington. Prior to leaving West One, he was Senior Vice President and Regional Manager of Banking Operations for the south Puget Sound region. Mr. Vance served as a director of the Pacific Bankers Management Institute, the Community Foundation of South Puget Sound, and the Western Independent Bankers Advisory Committee. He is the past President of the Washington Financial League and served as a trustee for the South Puget Sound Community College. | | | Committees: • Risk and Technology (Chair) | Qualifications: Mr. Vance brings valuable management and financial skills to the Board and provides extensive financial services industry knowledge, which includes credit administration, management and strategic forecasting. | |

  18. Business Experience of Nominees for Reelection

    | ANN WATSON | | DIRECTOR SINCE 2012 | | | Biographical Information: Ann Watson was the Chief Operating Officer of Cascadia Capital LLC, an investment banking firm headquartered in Seattle, Washington from 2015 to 2022. Ms. Watson previously served for two years as the Chief Financial Officer of Moss Adams LLP, a regional public accounting firm. She has also served as Chief Human Resources Officer, Management Committee Member, including the Information Technology Steering Committee and Risk Management Committee, Russell Mellon Board Member overseeing the Russell Indexes and as a Director in the Corporate Finance Group at Russell Investments, spanning a 15-year period. Prior to joining Russell Investments, she spent seven years with Chemical Bank/Manufacturers Hanover in New York and abroad where she held multiple global roles including strategic planning, loan workouts, client relationship management and credit analysis. Ms. Watson is a graduate of Columbia University with a Master of Business Administration and a graduate of Whitman College with a Bachelor of Arts in Economics. She serves on the Whitman College Board of Trustees. Among her prior community roles, she served as the Board Chair and Trustee of the Seattle Foundation, on the Board of the Washington Economic Development Finance Authority and on the Executive Committee of the Washington State China Relations Council. | | | Committees: • Compensation • Corporate Governance and Nominating | Qualifications: Ms. Watson brings extensive financial services industry and financial expertise to the Board, including merger and acquisition experience. Ms. Watson's significant executive leadership, compensation and human resources experience, and risk management background add to the Board's perspective. | |

  19. Board Composition

    Board Composition In making recommendations for nominees to the Board, the Corporate Governance and Nominating Committee actively considers the qualifications, strengths and abilities of the potential candidates for nomination. Qualified director nominees are expected to have a mix of business experience, financial literacy, industry knowledge, technical expertise and integrity, the ability to work effectively in a group, and provide strategic oversight. The current composition of our Board reflects the importance of diversity to the Board. The Board includes four women and one ethnically diverse director, as well as diverse skills and experience represented among all the director nominees. Additionally, the Board has an effective mix of experience and fresh perspective as illustrated below.

  20. Board Performance and Evaluations

    Board Performance and Evaluations The Corporate Governance and Nominating Committee proactively manages the Board evaluation process. The Board's performance is reviewed through a rigorous annual Board self-evaluation process as well as biennial peer assessments. A third-party compiles anonymous reviews and reports back to the Corporate Governance and Nominating Chair. The Corporate Governance and Nominating Committee reviews the collective board evaluation results and develops an action plan for discussion and approval by the Board. The peer assessment results are shared with the Corporate Governance and Nominating Chair, the Board Chair, and the Lead Independent Director and communicated individually with each director.

  21. Summary of Director Nominee Qualifications

    Summary of Director Nominee Qualifications

  22. Summary of Director Nominee Qualifications

    | Area of Expertise | Charneski | Deuel | Dryer | Ellwanger | Gavin | Giacobbe | Lyon | Rivera | Vance | Watson | | C-Suite Leadership | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Regulated Industry | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Financial Literacy | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Sales and Marketing | ✓ | ✓ | ✓ | | | ✓ | ✓ | ✓ | ✓ | ✓ | | Strategic Planning | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Technology | | | ✓ | | | ✓ | | | | | | Human Capital Management | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Enterprise Risk Management | ✓ | ✓ | ✓ | | ✓ | ✓ | | | ✓ | ✓ | | Mergers and Acquisitions | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |

  23. Board of Directors

    Board of Directors The Board conducts its business through meetings of the Board and through its committees. The Board typically meets ten times per year, holding special meetings as necessary. After each regular Board meeting, the independent directors meet in executive session, outside of the presence of the CEO and management. In addition, periodically the Board offers an executive session without the Board Chair, which is led by the Lead Independent Director. During the year ended December 31, 2023, the Board held ten regular meetings. No director attended fewer than 75% of the total meetings of the Board and committees on which the director served during 2023.

  24. CORPORATE GOVERNANCE

    CORPORATE GOVERNANCE Heritage is committed to effective corporate governance and acts in a manner that it believes best serves the interests of the Company, its shareholders, employees and communities. The Board reviews Heritage’s policies and business strategies and advises executive management, who manages and implements Heritage’s business model and operations. The Board has adopted Corporate Governance Guidelines, committee charters for each of the committees described above, Stock Ownership Guidelines and various policies, including the Code of Ethics Policy and Whistleblower Policy, to provide a framework for effective governance practices. The full text of these documents can be found at www.hf-wa.com. Governance is a continuing focus at Heritage and in this section, we describe our key governance policies, guidelines and practices.

  25. CORPORATE GOVERNANCE

    | Board Independence | • Nine of the ten directors are independent | | Board Performance | • The Board and its committees regularly assess their performance through self-evaluation with a structured follow-up process to address any concerns noted | | Board Committees | • Only independent directors serve on the Audit and Finance, Corporate Governance and Nominating, and Compensation Committees | | Leadership Structure | • The positions of Board Chair and CEO are separately held and we have a Lead Independent Director | | Risk Oversight | • The Board is responsible for monitoring key risks | | Open Communication | • We encourage open communication among our shareholders, directors and management | | Stock Ownership | • Directors and the named executive officers are required to hold Company stock | | | • Directors are required to own stock equivalent in value to 3 times the annual cash retainer paid | | | • The CEO is required to own stock equivalent in value to 3 times his annual base salary and the other named executive officers are required to own stock equivalent in value to 1.5 times their annual base salaries | | Accountability to Shareholders | • We elect all directors annually | | | • We actively engage with our largest institutional investors through a shareholder outreach process | | | • Directors are elected by a majority of votes cast, with plurality voting only in contested elections | | Retirement Guidelines | • Directors may not stand for election after reaching age 75 | | Succession Planning | • The Board actively plans for director and management succession |

  26. DIRECTOR COMPENSATION

    DIRECTOR COMPENSATION The following table shows the compensation paid to Heritage’s directors for their service to Heritage for the year ended December 31, 2023, with the exception of Jeffrey J. Deuel, who is the CEO of Heritage and does not receive compensation for his board service. Compensation received by Mr. Deuel for serving as Heritage's CEO in 2023 is included in the section below entitled “Executive Compensation.” Heritage's directors do not receive any additional fees for serving as directors of Heritage Bank.

  27. DIRECTOR COMPENSATION

    | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | All Other Compensation | Total ($) | | Eric K. Chan (2) | 46,750 | 50,000 | — | 96,750 | | Brian S. Charneski | 79,256 | 50,000 | — | 129,256 | | John A. Clees (3) | 14,500 | — | — | 14,500 | | Trevor D. Dryer | 46,750 | 50,000 | — | 96,750 | | Kimberly T. Ellwanger | 59,250 | 50,000 | — | 109,250 | | Deborah J. Gavin | 51,750 | 50,000 | — | 101,750 | | Gail B. Giacobbe | 46,750 | 50,000 | — | 96,750 | | Jeffrey S. Lyon | 51,750 | 50,000 | — | 101,750 | | Anthony B. Pickering (3) | 14,500 | — | — | 14,500 | | Frederick B. Rivera | 46,750 | 50,000 | — | 96,750 | | Brian L. Vance | 113,000 | 50,000 | — | 163,000 | | Ann Watson | 51,750 | 50,000 | — | 101,750 |

  28. DIRECTOR COMPENSATION

    (1) The amounts in the "Stock Awards" column reflect aggregate grant date fair value of restricted stock unit awards, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation—Stock Compensation” (“FASB ASC Topic 718”). For a discussion of valuation assumptions, please see footnotes to the financial statements in Heritage’s Annual Report on Form 10-K for the year ended December 31, 2023. Outstanding awards are discussed in the section below titled “Equity Compensation.” (2) Resigned on February 6, 2024 and as a result the stock awards Mr. Chan received in 2023 were forfeited. (3) Retired on May 1, 2023.

  29. 2023 Director Compensation Highlights

    2023 Director Compensation Highlights Effective July 1, 2023, the annual director cash retainer increased $6,500 to $50,000 and the Lead Independent Director's annual cash retainer increased $5,000 to $20,000. The Risk and Technology Committee Chair fee increased $2,500 to $12,500 and all other committee Chair fees remained the same. Equity compensation increased $6,500 to $50,000, with such increased equity compensation granted on June 21, 2023. Mr. Deuel did not receive any cash or equity compensation for service as a director or Board committee member.

  30. 2023 Executive Compensation Highlights

    2023 Executive Compensation Highlights During 2023, the Committee acted in accordance with Heritage’s compensation philosophy and provided our NEOs compensation aligned with Heritage’s financial performance and each NEO's individual performance. Compensation was commensurate with market comparisons and the Committee continued to consider shareholder value and prudent risk management. •Base Salary: The NEOs received merit increases ranging from 5% to 10% to improve their competitive pay positioning relative to the market. •Annual Incentive Compensation: Annual cash incentives ranged from 30.7% to 41.0% of 2023 base salary earned based on the performance relative to predetermined objective performance metrics. The performance metrics changed during 2023 and more emphasis was placed on diluted earnings per share compared to 2022 when loan growth was included as a performance metric. •Long-Term Incentive Compensation: ◦Equity incentive awards ranged from 60% of salary for the CEO and 35% to 45% of salary for the remaining NEOs. ◦50% of the target equity incentive awards for our NEOs, with the exception of Mr. Ray, are performance-based, earned according to cumulative results over a three-year performance period, and 50% are subject to three-year ratable service-based vesting. Mr. Ray did not participate in this incentive structure during 2023. He received a one-time equity grant of time-based restricted stock units with a grant date fair value of $150,025 vesting over three years in recognition of his promotion to Executive Vice President and Chief Lending Officer. ◦Performance stock units for the performance period 2021 through 2023, measured by three-year total shareholder return and return on average assets, performed at 0% and 80% of target, respectively. ◦Performance-based deferred compensation contributions ranged from $108,838 to $231,525, or 175% of target, based on actual performance relative to predetermined objective performance metrics for 2022. Mr. Ray does not participate in the deferred compensation plan.

  31. Best Practice Features

    | WHAT WE DO | | | WHAT WE DO NOT DO | | | | | ✓ | Strongly emphasize variable performance-based pay | | ✓ | No excessive perquisites | | | ✓ | Adhere to stock ownership guidelines | | ✓ | No stock option repricing, reloads, or exchanges without shareholder approval | | | ✓ | Enforce clawback provisions | | ✓ | No tax gross-ups | | | ✓ | Annually assess incentive compensation risks | | ✓ | No hedging of Heritage common stock | | | ✓ | Engage independent compensation consultants | | ✓ | No single trigger for accelerated vesting of service-based awards | | | ✓ | Actively reach out to our institutional shareholders | | ✓ | No heavy weighting of fixed compensation | | | ✓ | Eliminate annual bonus if Tier I Leverage ratio is below 8% | | | |

  32. 2023 Key Performance Metrics

    2023 Key Performance Metrics The graphs below capture the key performance metrics in our incentive plans and reflect actual performance. The overhead ratio, the net charge offs (recoveries), and diluted earnings per share impact the short and long-term incentive payments. The 2022 and 2021 performance metrics are provided to demonstrate trends and were not used in measuring the 2023 performance for the NEOs.

  33. 2023 Key Performance Metrics

    | * Total shareholder return is for a trailing 36-month period. Metric utilized relative to peers for long term incentives. | ** Non-interest expense divided by average assets. |

  34. Compensation Consultants and Advisors

    Compensation Consultants and Advisors The Committee utilizes the services of Pearl Meyer & Partners (“Pearl Meyer”), an independent compensation consulting firm. Pearl Meyer provides assistance and advice related to a variety of Committee responsibilities on an as-needed basis, such as review of incentive plans, review of compensation philosophy and strategy, evaluation of compensation-related proposals from management, and ongoing Committee education on compensation topics. Pearl Meyer does not perform any services for the Company other than those directed by the Committee. After the Committee’s review of applicable rules for independence, the Committee determined that Pearl Meyer is independent. Pearl Meyer reports directly to the Committee. The Committee has the authority to retain, at Heritage’s expense, legal counsel and other advisors, on an as-needed basis, and has and will evaluate the independence of such advisors as the Committee deems appropriate and as may be required by the Nasdaq listing standards.

  35. Use of Competitive Data

    Use of Competitive Data The Committee reviews its peer group every two years and engaged Pearl Meyer in 2023 to update the peer group companies and competitive compensation study. The Committee used the results in making pay decisions for 2023. During 2023, the Committee approved a peer group based, generally, on the following criteria: •commercial banks located in the U.S. and publicly-traded financial institutions; •asset size range of 0.5 to 2.0 times Heritage; •operating revenue of 0.5 to 2.0 times Heritage; •market capitalization range of 0.5 to 2.0 times Heritage; •consider banks throughout the U.S. but give priority to Western U.S. banks; and •comparable business model. The resulting benchmarking peer group consisted of the following 20 companies:

  36. Use of Competitive Data

    | Peer Banks | | | | Amerant Bancorp Inc. | Heritage Commerce Corp. | S&T Bancorp, Inc. | | Banc of California, Inc. | Lakeland Financial Corporation | 1st Source Corporation | | Bank of Marin Bancorp | Mercantile Bank Corporation | Stock Yards Bancorp, Inc. | | Byline Bancorp, Inc. | Old Second Bancorp, Inc. | TriCo Bancshares | | Enterprise Financial Services Corp. | Origin Bancorp, Inc. | Univest Financial Corporation | | Premier Financial Corp. | Seacoast Banking Corporation of Florida | Veritex Holdings, Inc. | | First Mid Bancshares, Inc. | Southside Bancshares, Inc. | |

  37. Use of Competitive Data

    The following summary data for the benchmarking peer group was obtained from S&P Global's database as of December 31, 2023.

  38. Use of Competitive Data

    | Percentile | Market Capitalization ($ in millions) | Total Assets ($ in thousands) | | 25th Percentile | $825.79 | $8,071,881 | | 50th Percentile | $1,066.63 | $9,133,359 | | 75th Percentile | $1,449.69 | $10,217,209 | | Heritage Financial Corporation | $746.64 | $7,174,957 | | Heritage Financial Corporation Percent Rank | 18% | 13% |

  39. Performance-Based Equity Peer Group

    Performance-Based Equity Peer Group The Committee has developed a performance peer group solely for determining payouts under our performance-based equity awards, which measure our performance relative to that of the performance peer group. The composition of the performance peer group is established by the Committee at the beginning of each performance cycle and generally consists of all U.S. commercial banks (or their holding companies) traded on a major exchange with total assets at the beginning of the performance period between one-half and twice the total assets of Heritage. The Committee uses a different, larger peer group for the performance-based equity grants to our NEOs to mitigate the impact of one or more companies exiting the peer group due to acquisitions or mergers during the three-year performance period. See the "2023 Equity Award Determinations" section below for a description of performance-based equity granted to the NEOs in 2023.

  40. Components of Compensation

    | Component | Key Characteristics | Purpose | | Base Salary | Fixed compensation component. Reviewed annually and adjusted when appropriate. | Intended to compensate an executive officer appropriately for the responsibility level of the position held as well as be competitive within the banking industry. | | Cash Incentives | Annual incentives, variable compensation component. | Intended to motivate and reward executives for achieving annual goals. The annual incentives are performance-based and reflect the actual performance results compared to pre-established goals. | | Equity-Based Compensation | Long-term incentives, variable compensation component, typically granted annually. Equity is awarded with 50% performance vesting and 50% service vesting. | Intended to motivate executives to achieve our business objectives by tying incentives to long-term performance. The stock ownership aligns executive and shareholder interests and serves as a retention tool. | | Deferred Compensation | Long-term incentives, variable compensation component— performance-based award opportunity, typically granted annually. | Intended to provide a retirement planning mechanism while motivating executives to achieve our business objectives by tying Company contributions to long-term performance. | | Post-Employment Compensation | Fixed compensation component. | Intended to provide temporary severance income following an executive’s involuntary termination of employment and to retain senior executives in a competitive marketplace. |

  41. Base Salary

    Base Salary Salary levels are designed to be competitive within the banking industry and are based on the experience, tenure, performance and responsibility of each executive. We periodically engage compensation consultants to provide us with compensation benchmark studies and the compensation consultants utilize multiple compensation surveys and peer group comparisons to ensure that executive compensation is appropriate in comparison to competitors of a similar size or within our market areas. The Committee generally meets in June of each year in order to approve the base salaries of our NEOs effective July 1 of that year. This timing coincides with the review of the NEOs' performance and the prior year performance of Heritage and its subsidiaries, as well as the availability of current proxy information for members of our peer group. Base salaries may be adjusted at other times during the year to accommodate for promotions or added responsibilities.

  42. Annual Cash Incentives

    Annual Cash Incentives We use annual cash incentives under our Management Incentive Plan ("MIP") to focus attention on annual strategic priorities and encourage achievement of short-term corporate objectives. The objectives of the MIP are to reward and retain high performers, to drive Heritage’s long-term financial success, to encourage teamwork and to create an environment where executives are rewarded if Heritage achieves or exceeds pre-determined annual performance criteria. The MIP’s design incorporates annual incentive awards that are linked to the achievement of pre-defined performance goals with targets and maximum percentages determined by roles and responsibilities. The incentive ranges (as a percentage of salary) are designed to provide market competitive payouts for the achievement of threshold, target and maximum levels of performance. The annual awards are determined by previously approved goals, calculated based on actual financial and individual performance results and then recommended by management to the Committee. The Committee then reviews and approves or disapproves the annual cash incentive recommendations. The Committee approves the funding for the MIP based on meeting or exceeding corporate performance goals. Each performance goal has an established threshold (minimum), target and maximum expected performance level. No payment will be made for a goal if performance falls below the threshold level. Performance ratings for each specific corporate and individual goal between threshold and target or between target and maximum will result in a proration of the annual cash incentive payout. Each NEO has a scorecard with performance results. The 2023 MIP provided that no bonus payments would be paid from the plan should the corporate Tier 1 Leverage Ratio drop below 8% as of December 31, 2023. The Committee reserves the right, in its sole discretion, to adjust incentive payouts when extraordinary circumstances occur during the performance period. For the 2023 performance period, the Committee exercised discretion by making a one-time adjustment to account for a $1.5 million contract negotiation fee, which resulted in an adjusted overhead ratio of 2.31% compared to the 2.33% unadjusted overhead ratio.

  43. Annual Cash Incentive Performance Goals

    Annual Cash Incentive Performance Goals For 2023, the Committee approved the following corporate performance goals for our NEOs:

  44. Annual Cash Incentive Performance Goals

    | Corporate Goal | Weighting | Threshold | Target | Maximum | Actual 2023 Performance | | Diluted Earnings per Share | 40% (1) | $2.29 | $2.69 | $3.09 | $1.75 | | Net Charge Offs (Recoveries)/Average Loans | 20% (2) | 0.12% | 0.07% | 0.02% | (0.01)% | | Overhead Ratio | 40% (3) | 2.50% | 2.40% | 2.25% | 2.33%(4) |

  45. Annual Cash Incentive Performance Goals

    (1)For Mr. Chalfant, the Diluted Earnings per Share weighting was 35%. (2)For Mr. Chalfant, the Net Charge Offs (Recoveries)/Average Loans weighting was 30%. (3)For Mr. Chalfant, the Overhead Ratio weighting was 35%. (4)The Committee exercised discretion by making a one-time adjustment to account for a $1.5 million contract negotiation fee, which resulted in an adjusted overhead ratio of 2.31% compared to the 2.33% unadjusted overhead ratio in the table above.

  46. 2023 Annual Cash Incentive Award Determinations

    2023 Annual Cash Incentive Award Determinations The 2023 cash incentive awards and resulting payouts for our NEOs were as follows:

  47. 2023 Annual Cash Incentive Award Determinations

    | Name | Target Opportunity as % of Base Salary (effective 1/1/23) | Annual Cash Incentive Received as a % of 2023 Base Salary Earned | Annual Cash Incentive Award Payout ($) | | Jeffrey J. Deuel | 50% | 41.0% | $281,386 | | Bryan D. McDonald | 45% | 36.9% | $160,931 | | Donald J. Hinson | 40% | 32.8% | $124,115 | | Tony W. Chalfant | 40% | 36.2% | $116,791 | | Matthew T. Ray | 35% | 30.7% | $86,535 |

  48. Equity-Based Compensation

    Equity-Based Compensation Equity-based compensation is intended to more closely align the financial interests of our executives with those of our shareholders in the creation of long-term shareholder value, and to assist in the retention of key executives. Equity awards are granted using a mix of service-based and performance-based vesting awards. Performance-based awards are linked to the achievement of pre-defined performance goals relative to a pre-defined peer group. The Committee reviews and approves or disapproves the equity-based compensation recommendations from management, and the equity-based compensation awards are ultimately discretionary. The Heritage Financial Corporation 2023 Omnibus Equity Plan allows for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, restricted performance stock, unrestricted stock and performance unit awards to directors, officers and other employees of Heritage and its subsidiaries. Heritage provides the NEOs with target award opportunities expressed as a percentage of salary, as described in the table below. Each NEO's target opportunity is based upon factors such as the executive's role and scope of responsibilities. If an NEO did not meet the performance goals under the MIP for the prior year, the officer may also receive a reduced equity award or no award. Additionally, each NEO is required to maintain a satisfactory performance rating to receive an equity award. The Committee also may make discretionary grants of equity awards, based on factors relating primarily to the responsibilities of individual executives, their expected future contributions to Heritage and the recruitment and development of new officers.

  49. 2023 Equity Award Determinations

    2023 Equity Award Determinations In February 2023, our NEOs were granted restricted stock units based on target percentages of their respective January 1, 2023 base salaries as outlined in the table below. For our NEOs, except for Mr. Ray, 50% of the target award is subject to three-year ratable service-based vesting and 50% of the target award may be earned based on cumulative performance over the three-year period of January 1, 2023 through December 31, 2025. The performance metrics selected by the Committee for the performance-based awards were return on average tangible common equity and three-year total shareholder return, in each case, relative to the Bank's performance-based peer group. The Committee chose this mix to strengthen the pay-for-performance feature while preserving the retention benefit of the awards. The following table contains the target opportunity, expressed as a percentage of base salary, for each of our NEOs, as well as their actual 2023 awards.

  50. 2023 Equity Award Determinations

    | Name | Target Opportunity as % of Eligible Salary | Equity Awards Granted ($ Value) | 50% in Target Performance Stock Units | 50% in Restricted Stock Units | | Jeffrey J. Deuel | 60% | $396,900 | 7,018 | 7,017 | | Bryan D. McDonald | 45% | $189,164 | 3,345 | 3,344 | | Donald J. Hinson | 40% | $144,152 | 2,549 | 2,549 | | Tony W. Chalfant | 40% | $124,387 | 2,200 | 2,199 | | Matthew T. Ray (1) | 35% | $206,189 | — | 7,291 |

  51. 2023 Equity Award Determinations

    (1) Mr. Ray did not participate in the 2023 performance share program. Mr. Ray's 2023 equity awards included a one-time promotion grant of restricted stock units, with a grant date value of $150,025 which vest ratably over 10 years and the 2022 performance grant of restricted stock units, with a grant date fair value of $56,164, which vest ratably over three years. The 2022 performance metrics were weighted as follows: 33% New Loan Production, 10% Loan Fees, 17% New Deposit Accounts, 10% Credit Quality, 10% Overhead Ratio, 10% Diluted Earnings per Share, and 10% Loan Growth. The performance metrics for the performance awards granted in 2023 are as follows:

  52. 2023 Equity Award Determinations

    | Corporate Goal | Weighting | Threshold | Target | Maximum | | Return on Average Tangible Common Equity | 50% | 25th Percentile | 50th Percentile | 75th Percentile | | Three-Year Total Shareholder Return | 50% | 25th Percentile | 50th Percentile | 75th Percentile | | Payout Opportunity as a % of Target (1) | | 0% | 100% | 150% |

  53. 2023 Equity Award Determinations

    (1) The incremental vesting for each percentile point between threshold and target is 4%, and the incremental vesting between target and maximum is 2%.

  54. 2021 Performance Share Award Payout

    2021 Performance Share Award Payout Performance shares granted in 2021 were subject to performance vesting conditions tied to the Company's return on average assets and three-year total shareholder return relative to a defined peer group of banks, in each case, over the period from January 1, 2021 through December 31, 2023. In February 2024, the Committee reviewed the Company's actual performance against the defined peer group of banks to determine the payout. A summary of the Company's performance as measured against the goals, and the resulting payout, is set forth below.

  55. 2021 Performance Share Award Payout

    | Corporate Goal | Weighting | Threshold | Target | Maximum | Actual Performance | % of Target Payout | | Return on Average Assets | 50% | 25th Percentile | 50th Percentile | 75th Percentile | 45th Percentile | 80% | | Three-Year Total Shareholder Return | 50% | 25th Percentile | 50th Percentile | 75th Percentile | 17th Percentile | 0% |

  56. 2021 Performance Share Award Payout

    Based on the performance results, our NEOs received a payout of 40% of the target number of shares granted, resulting in our NEOs vesting in the following number of shares:

  57. 2021 Performance Share Award Payout

    | Name | Target 2021 Performance Shares Granted | Number of Shares Earned | % of Target | | Jeffrey J. Deuel | 6,635 | 2,654 | 40% | | Bryan D. McDonald | 2,591 | 1,037 | 40% | | Donald J. Hinson | 1,960 | 784 | 40% | | Tony W. Chalfant | 1,643 | 658 | 40% |

  58. 2021 Performance Share Award Payout

    Mr. Ray did not participate in the 2021 performance share program.

  59. Perquisites and Other Benefits

    Perquisites and Other Benefits Heritage NEOs are eligible to participate in all Heritage benefit plans on the same terms as other employees. These plans include medical, dental and vision insurance, life insurance, long-term disability insurance and flexible spending accounts. Messrs. Deuel and Chalfant additionally receive perquisites in the form of club memberships, and Messrs. Deuel and McDonald receive perquisites in the form of Company-provided automobiles. These perquisites are considered a priority for these individuals because of their community involvement and business development activities. In addition, each of our NEOs is a party to an endorsement-method split-dollar insurance agreement with Heritage that provides additional life insurance in an amount equal to 100% of the NEO's base salary. Under the agreements, NEOs have insurance coverage with a death benefit payable in an amount equal to the lesser of 100% of the net amount-at-risk or the annual base salary then in effect. Heritage pays all premiums and is entitled to the cash value of the policy and the remainder of the executive’s death benefit, if any. In addition, the policies permit the NEOs to access an accelerated eligible death benefit in an amount equal to the lesser of 100% of the net amount-at-risk or $500,000 in the event the NEO incurs a chronic or terminal illness during employment, following termination of employment, on or after the NEO's attainment of age 62, or when the NEO is involuntarily terminated or terminates employment for good reason following a change in control. The economic value of such agreements for 2023, representing the imputed income amount of the insurance coverage for tax purposes is set forth as part of “All Other Compensation” in the Summary Compensation Table below.

  60. Regulatory Considerations

    Regulatory Considerations As a publicly-traded financial institution, Heritage must comply with multiple layers of regulations when considering and implementing compensation decisions. These regulations do not set specific parameters within which compensation decisions must be made; however, they do require that the Company and the Committee be mindful of the risks associated with compensation programs designed to incentivize superior performance. While the regulatory focus has been heightened over the last several years, the incorporation of general risk assessment concepts into compensation decisions is not a recent development. Under the Interagency Guidelines Establishing Standards for Safety and Soundness (the "Safety and Soundness Standards"), published by the Federal Deposit Insurance Corporation ("FDIC") in 2015, excessive compensation is prohibited as an unsafe and unsound practice. When determining whether compensation is excessive, the FDIC has directed financial institutions to consider whether aggregate cash amounts paid or noncash benefits provided to an employee is unreasonable or disproportionate to the services the employee performs. The Safety and Soundness Standards set forth a framework within which financial institutions should evaluate an employee’s compensation, with factors including compensation history, internal pay equity, and, if appropriate, comparable compensation practices at peer institutions. This framework also requires Heritage to consider its overall financial condition. Separately, the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision together issued the Guidance on Sound Incentive Compensation Policies (the "Joint Guidance") in 2010. The Joint Guidance complements the Safety and Soundness Standards and establishes a framework within which financial institutions must assess the soundness of their incentive compensation plans, programs, and arrangements. Because the Joint Guidance is limited to senior executive officers and those other individuals who, either alone or as a group, could pose a material risk to the financial institution, it is somewhat narrower in scope than the Safety and Soundness Standards. With respect to those individuals to whom it applies, the Joint Guidance aims to ensure that any available incentive compensation arrangements appropriately balance risk and reward, are compatible with effective controls and risk management, and have the support of strong corporate governance. The Company is also subject to the SEC’s rules regarding risk assessment, which apply to all publicly-traded companies. The SEC rules require Heritage to determine whether any of its existing incentive compensation plans, programs, or arrangements create risks that are reasonably likely to have a material adverse effect on the Company. Accordingly, the Committee completes an annual risk assessment of all of the Company’s compensation programs and components, most recently performed in December 2023. The Committee has determined that the Company's incentive compensation plans, programs, and arrangements do not create risks that are reasonably likely to have a material adverse effect on the Company. The Committee believes that its regular, overall assessment of the compensation plans, programs and arrangements established for the Company's NEOs includes a sensible, responsible approach toward balancing risks and rewarding reasonable, but not easily attainable, goals. The Committee annually revisits the frameworks set forth in the Safety and Soundness Standards and the Joint Guidance, as both are effective parts of the Committee's overall assessment of the balance between risk and reward in the Company’s compensation arrangements. Finally, when making decisions about executive compensation, the Company also considers the impact of other regulatory provisions, including: Section 162(m) of the Code regarding the tax deductibility of certain compensation; Section 409A of the Code regarding nonqualified deferred compensation; Section 280G of the Code regarding excise taxes and deduction limitations on golden parachute payments made in connection with a change in control; and FASB ASC Topic 718, which requires Heritage to recognize the compensation cost of grants of equity awards based upon their grant date fair value.

  61. Summary Compensation Table

    Summary Compensation Table The following table shows the aggregate compensation for services rendered to Heritage or its subsidiaries by our NEOs paid or accrued for the years ended December 31, 2023, 2022 and 2021.

  62. Summary Compensation Table

    | Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)(3) | All Other Compensation ($)(5) | Total ($) | | Jeffrey J. Deuel President and Chief Executive Officer, Heritage Financial Corporation | 2023 | 686,306 | 381,365 | 281,386 | 11,371 | 249,212 | 1,609,640 | | | 2022 | 645,750 | 389,337 | 381,661 | 11,787 | 218,096 | 1,646,631 | | | 2021 | 575,000 | 340,010 | 426,458 | 7,408 | 82,398 | 1,431,274 | | Bryan D. McDonald President and Chief Operating Officer, Heritage Bank | 2023 | 436,128 | 181,754 | 160,931 | 6,948 | 163,062 | 948,823 | | | 2022 | 414,243 | 147,132 | 208,107 | 7,141 | 159,211 | 935,834 | | | 2021 | 396,571 | 132,777 | 235,299 | 4,308 | 57,332 | 826,287 | | Donald J. Hinson Executive Vice President and Chief Financial Officer | 2023 | 378,400 | 138,523 | 124,115 | 8,122 | 137,135 | 786,295 | | | 2022 | 355,133 | 108,124 | 157,422 | 8,843 | 132,766 | 762,288 | | | 2021 | 344,790 | 100,440 | 179,003 | 5,803 | 48,875 | 678,911 | | Tony W. Chalfant Executive Vice President and Chief Credit Officer | 2023 | 322,628 | 119,531 | 116,791 | 2,017 | 136,243 | 697,210 | | | 2022 | 306,438 | 93,309 | 144,950 | 1,359 | 128,783 | 674,839 | | | 2021 | 293,365 | 84,195 | 152,519 | 144 | 38,359 | 568,582 | | Matthew T. Ray(4) Executive Vice President and Chief Lending Officer | 2023 | 301,515 | 206,189 | 86,535 | — | 10,670 | 604,909 |

  63. Summary Compensation Table

    (1) The amounts in the "Stock Awards" column reflect the aggregate grant date fair value of the awards, computed in accordance with FASB ASC Topic 718. Awards subject to performance conditions for Messrs. Deuel, McDonald, Hinson and Chalfant are reported assuming target level performance, the probable outcome at the time of grant. The February 22, 2023 grant date fair value for the time-vested shares and the portion of the performance shares measured by return on average assets was $28.28 per share and the grant date fair value for the portion of the performance shares measured by total shareholder return was $23.85 per share under the Monte Carlo method. The stock award amounts for performance-based grants have been adjusted to properly reflect the grant date fair value using the Monte Carlo method used for accounting purposes. For a discussion of valuation assumptions, see the Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2023. If awards subject to performance conditions were reported assuming maximum level performance, the combined values reported above for stock awards for 2023 would have been as follows: $472,827 for Mr. Deuel, $225,346 for Mr. McDonald, $171,742 for Mr. Hinson, and $148,202 for Mr. Chalfant. (2) The amounts in the "Non-Equity Incentive Plan Compensation" column reflect the actual earnings under the MIP. The material terms of the MIP for 2023 are described in the Compensation Discussion and Analysis under “2023 Annual Cash Incentive Award Determinations.” (3) The amounts in the "Change in Pension Value & Nonqualified Deferred Compensation Earnings" column consist of above market interest on compensation deferred under the Deferred Compensation Plan. (4) Mr. Ray was not an NEO in 2022 or 2021. (5) The following table reflects all other compensation to our NEOs for 2023:

  64. Summary Compensation Table

    | Name | Employer 401(k) Match ($) | Cell Phone ($) | Deferred Compensation Plan Contributions ($) | Club Membership ($) | Automobile Provision ($) | Executive Life Insurance ($) | Total ($) | | Jeffrey J. Deuel | 9,900 | 673 | 231,525 | 2,942 | 3,010 | 1,162 | 249,212 | | Bryan D. McDonald | 9,900 | 660 | 147,128 | — | 5,063 | 311 | 163,062 | | Donald J. Hinson | 9,900 | 605 | 126,133 | — | — | 497 | 137,135 | | Tony W. Chalfant | 9,900 | 660 | 108,838 | 16,270 | — | 575 | 136,243 | | Matthew T. Ray | 9,900 | 600 | — | — | — | 170 | 10,670 |

  65. Grants of Plan-Based Awards Table

    Grants of Plan-Based Awards Table The following table discloses each plan-based award made to our NEOs during the year ended December 31, 2023.

  66. Grants of Plan-Based Awards Table

    | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | | Estimated Possible Payouts Under Equity Incentive Plan Awards (2) | | | All Other Stock Awards Number of Shares of Stock or Units (#) (3) | Grant Date Fair Value of Stock and Option Awards ($) (4) | | Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Jeffrey J. Deuel | — | — | 343,153 | 514,730 | — | — | — | — | — | | | 02/22/2023 | — | — | — | — | 7,018 | 10,527 | — | 182,924 | | | 02/22/2023 | — | — | — | — | — | — | 7,017 | 198,441 | | Bryan D. McDonald | — | — | 196,258 | 294,387 | — | — | — | — | — | | | 02/22/2023 | — | — | — | — | 3,344 | 5,016 | — | 87,185 | | | 02/22/2023 | — | — | — | — | — | — | 3,344 | 94,568 | | Donald J. Hinson | — | — | 151,360 | 227,040 | — | — | — | — | — | | | 02/22/2023 | — | — | — | — | 2,549 | 3,824 | — | 66,437 | | | 02/22/2023 | — | — | — | — | — | — | 2,549 | 72,086 | | Tony W. Chalfant | — | — | 129,051 | 193,577 | — | — | — | — | — | | | 02/22/2023 | — | — | — | — | 2,199 | 3,299 | — | 57,343 | | | 02/22/2023 | — | — | — | — | — | — | 2,199 | 62,188 | | Matthew T. Ray | — | — | 105,530 | 158,295 | — | — | — | — | — | | | 02/22/2023 | — | — | — | — | — | — | 7,291 | 206,189 | | | 12/20/2023 | — | — | — | — | — | — | — | — |

  67. Grants of Plan-Based Awards Table

    (1)The amounts in the "Estimated Possible Payouts Under Non-Equity Incentive Plan Awards" column reflect the target and maximum award opportunities under the MIP for 2023. The actual awards for 2023 are presented in the Summary Compensation Table. There were no threshold opportunity levels under the MIP for 2023. For a participant to be eligible to receive any award, corporate performance had to exceed a threshold level and the participant had to achieve a satisfactory individual performance evaluation. The material terms of the MIP for 2023 are described in the Compensation Discussion and Analysis under “2023 Annual Cash Incentive Award Determinations.” (2)The amounts in the "Estimated Possible Payouts Under Equity Incentive Plan Awards" reflect the threshold, target and maximum performance stock unit opportunities granted in 2023. The material terms of these awards are described in the Compensation Discussion and Analysis under the "2023 Equity Award Determinations." (3)The amounts in the "All Other Stock Awards Number of Shares of Stock or Units" column reflect service-based restricted stock units granted in 2023. The material terms of these awards are described in the Compensation Discussion and Analysis under “2023 Equity Award Determinations.” (4)The amounts in the "Grant Date Fair Value of Stock and Option Awards" reflect the aggregate grant date fair value of awards, computed in accordance with FASB ASC Topic 718. Awards subject to performance conditions are reported assuming target level performance, the probable outcome at the time of grant. The February 22, 2023 grant date fair value for the time-vested shares and the portion of the performance shares measured by return on average assets was $28.28 per share and grant date fair value for the portion of the performance shares measured by total shareholder return was $23.85 per share. For a discussion of valuation assumptions, see Note 20 to the Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2023.

  68. Outstanding Equity Awards Table

    Outstanding Equity Awards Table The following table shows the unvested stock awards held by our NEOs as of December 31, 2023. There were no outstanding stock options as of December 31, 2023.

  69. Outstanding Equity Awards Table

    | | | Stock Awards | | | | | Name | Grant Date | Number of Shares or Units That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (1) | Equity Incentive Plan Awards Number of Unearned Shares or Units of Stock that Have Not Vested (#) (2) | Equity Incentive Plan Awards Market Value of Unearned Shares or Units of Stock that Have Not Vested ($) (3) | | Jeffrey J. Deuel | 02/25/2021 | 2,255(4) | 48,234 | 6,635 | 141,923 | | | 02/22/2022 | 4,871(4) | 104,191 | 9,133 | 195,355 | | | 02/22/2023 | 7,017(4) | 150,094 | 7,018 | 150,115 | | Bryan D. McDonald | 02/25/2021 | 880(4) | 18,823 | 2,591 | 55,421 | | | 02/22/2022 | 1,841(4) | 39,379 | 3,451 | 73,817 | | | 02/22/2023 | 3,344(4) | 71,528 | 3,345 | 71,550 | | Donald J. Hinson | 02/25/2021 | 666(4) | 14,246 | 1,960 | 41,924 | | | 02/22/2022 | 1,353(4) | 28,941 | 2,536 | 54,245 | | | 02/22/2023 | 2,549(4) | 54,523 | 2,549 | 54,523 | | Tony W. Chalfant | 06/25/2020 | 3,946(5) | 84,405 | — | — | | | 02/25/2021 | 558(4) | 11,936 | 1,643 | 35,144 | | | 02/22/2022 | 1,168(4) | 24,984 | 2,189 | 46,823 | | | 02/22/2023 | 2,199(4) | 47,037 | 2,200 | 47,058 | | Matthew T. Ray | 03/01/2018 | 2,521(6) | 53,924 | — | — | | | 02/25/2021 | 798(4) | 17,069 | — | — | | | 02/22/2022 | 1,420(4) | 30,374 | — | — | | | 02/22/2022 | 619(7) | 13,240 | — | — | | | 02/22/2023 | 1,986(4) | 42,481 | — | — | | | 02/22/2023 | 5,305(6) | 113,474 | — | — |

  70. Outstanding Equity Awards Table

    (1)The amounts in the "Market Value of Shares or Units of Stock That Have Not Vested" column represent grants of service-based restricted shares or units of Heritage common stock. The market value of these shares or units is the number of shares that had not vested as of December 31, 2023 multiplied by $21.39, the closing price of Heritage common stock on December 29, 2023 (the last trading day of the year). (2)The amounts in the "Equity Incentive Plan Awards Number of Unearned Shares or Units of Stock that Have Not Vested" reflect outstanding performance-based stock units assuming: (a) maximum level of performance for the three-year total shareholder return goal for shares granted in 2022 and (b) target level performance for the three-year total shareholder return goal for shares granted in 2021 and 2023, the return on average assets goal for shares granted in 2021, and the return on average tangible common equity goal for shares granted in 2022 and 2023. The performance stock units cliff vest after three years and are measured relative to peers for total shareholder return and return on average assets or return on average tangible common equity. (3)The amounts in the "Equity Incentive Plan Awards Market Value of Unearned Shares or Units of Stock That Have Not Vested" column represent the market value of grants of performance-based restricted shares or units of Heritage common stock that had not vested as of December 31, 2023 multiplied by $21.39, the closing price of Heritage common stock on December 29, 2023 (the last trading day of the year). (4)The restricted stock unit awards vest ratably over three years from the date of grant as of March 15th annually. (5)The restricted stock unit awards vest ratably over six years from the date of grant as of June 15th annually. (6)The restricted stock unit awards vest ratably over ten years from the date of grant as of March 15th annually. (7)The restricted stock unit awards vest ratably over five years from the date of grant as of March 15th annually.

  71. Option Exercises and Stock Vested

    Option Exercises and Stock Vested The following table shows the value realized upon the vesting of stock awards for the NEOs during the year ended December 31, 2023. During 2023, there were no stock options exercised by the NEOs.

  72. Option Exercises and Stock Vested

    | | Stock Awards | | | Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | | Jeffrey J. Deuel | 13,946 | 318,387 | | Bryan D. McDonald | 5,414 | 123,602 | | Donald J. Hinson | 4,076 | 93,055 | | Tony W. Chalfant | 3,078 | 63,393 | | Matthew T. Ray | 3,054 | 69,723 |

  73. Nonqualified Deferred Compensation

    Nonqualified Deferred Compensation The following table provides information for the NEOs regarding participation in plans that provide for the deferral of compensation on a non-tax qualified basis during the year ended December 31, 2023.

  74. Nonqualified Deferred Compensation

    | Name | Executive Contributions ($) | Registrant Contributions ($) (1) | Aggregate Earnings ($) (2) | Aggregate Withdrawals/Distributions ($) | Aggregate Balance at December 31, 2023 ($) (3) | | Jeffrey J. Deuel | — | 231,525 | 62,142 | — | 1,384,310 | | Bryan D. McDonald | — | 147,128 | 37,971 | — | 845,849 | | Donald J. Hinson | — | 126,133 | 44,384 | — | 988,726 | | Tony W. Chalfant | — | 108,838 | 11,025 | — | 245,590 | | Matthew T. Ray | — | — | — | — | — |

  75. Nonqualified Deferred Compensation

    (1)The amounts in the "Registrant Contributions" column are reported as compensation for 2023 in the Summary Compensation Table above. (2)Of the amounts in the "Aggregate Earnings" column for the year ended December 31, 2023, the following amounts are reported as nonqualified deferred compensation earnings for 2023 in the Summary Compensation Table above: $11,371, $6,948, $8,122, and $2,017 for Messrs. Deuel, McDonald, Hinson, and Chalfant, respectively. (3)Of the amounts reported in the "Aggregate Balance at December 31, 2023" column, the following amounts were reported as compensation in the Summary Compensation Table in previous years: Messrs. Deuel, McDonald, Hinson, and Chalfant had prior year contributions and above market earnings of $982,413, $610,049, $733,422, and $125,548, respectively. Heritage adopted a deferred compensation plan in 2012. Heritage has since entered into a participation agreement with each of the NEOs except for Mr. Ray and, with respect to Messrs. Deuel, McDonald, Hinson, and Chalfant, an amendment to their agreements, that provided for 2023 performance-based contributions by Heritage to each executive’s account based on 2022 performance. The potential performance-based contributions were based on a percentage of the respective executive’s salary, with a pre-determined minimum, target and maximum level, with the amount of the contributions based on Heritage's actual achievement of the pre-determined performance goals. The performance metrics used to determine the amount of the contributions are described in the "Deferred Compensation Plan" section of the Compensation Discussion and Analysis under "Retirement Benefits." Under their respective Deferred Compensation Plan participation agreements, as amended, Heritage’s contributions on behalf of Messrs. Deuel, McDonald, and Hinson for 2023 based on 2022 performance were set at 10% of salary for minimum achievement of performance goals, 20% for target achievement and 35% for maximum achievement. Company contributions on behalf of Messrs. Deuel and Hinson under the Deferred Compensation Plan are fully vested. Company contributions on behalf of Mr. McDonald under the Deferred Compensation Plan were 80% vested as of January 1, 2023 and will vest an additional 10% as of each January 1 thereafter. The participation agreements, as amended in 2016, 2019 and 2022 with respect to Messrs. Deuel and Hinson, and in 2019 and 2022 with respect to Mr. McDonald, provide for Company contributions under the Deferred Compensation Plan for plan years through and including 2025 (to be paid in 2026). Under Mr. Chalfant's Deferred Compensation Plan participation agreement, entered into in 2020, Mr. Chalfant first became eligible for a contribution in Heritage in 2021 based on 2020 performance. Such contributions are set at 10% of salary for minimum achievement of performance goals, 20% for target achievement and 35% for maximum achievement. Company contributions on behalf of Mr. Chalfant under the Deferred Compensation Plan were 40% vested as of January 1, 2023 and will vest an additional 20% each the following three years until July 1, 2026, at which time Mr. Chalfant will become fully vested. His participation agreement, as amended in 2022, provides for Company contributions under the Deferred Compensation Plan for plan years through and including 2025 (to be paid in 2026). Under all of the Deferred Compensation participation agreements, Heritage’s contributions fully vest upon a change in control or the participant’s death or disability. In the event of the participant’s separation from service other than for cause, the participant forfeits all unvested amounts and if the separation from service is for cause, the participant forfeits all vested and unvested amounts. Individual voluntary deferrals, if any, are always fully vested and not subject to forfeiture. Distributions of the vested portion begin on the later to occur of the participant’s 65th birthday, or the participant’s separation from service but may be distributed earlier upon the participant’s death or disability. Distributions that are made as a result of the participant attaining age 65 or separating from service, other than due to death or disability, are made in monthly installments over 24 or 60 months. If, however, the separation from service occurs within 24 months following a change in control or as a result of the participant’s death or disability, the payment would be made in a lump sum in the month following such separation from service, death or disability.

  76. Potential Payments Upon Termination or Change in Control

    Potential Payments Upon Termination or Change in Control The following table reflects the estimated amounts of compensation that would be paid to each NEO in the event of various terminations of employment and in the event of a change in control of Heritage as of the last business day of the year ended December 31, 2023. The calculations do not include compensation and benefits the NEOs would receive that are generally available to our salaried employees or, generally, upon a voluntary termination of employment. Amounts set forth in the following table are gross amounts and, to the extent paid in connection with a change in control, may be subject to a cutback resulting in a reduced payment being made to the NEOs.

  77. Potential Payments Upon Termination or Change in Control

    | Name | Compensation/Benefits Payable upon Termination | Termination Without Cause by the Employer or Termination for Good Reason by the Employee ($) | Qualifying Termination in Connection with a Change in Control ($) | Termination in the Event of Disability ($) | Termination in the Event of Death ($) | Change in Control - No Termination ($) | | Jeffrey J. Deuel | Cash Severance (1) | 1,611,422 | 3,222,844 | — | — | — | | | Accelerated Vesting of Equity Awards (2) | 752,757 | 752,757 | 752,757 | 752,757 | 448,313 | | | Accelerated Vesting of Deferred Compensation (3) | — | — | — | — | — | | | Continued Medical and Dental Coverage | 20,576 | 20,576 | — | — | — | | | Split Dollar Benefit (4) | — | — | — | 711,113 | — | | | MIP (5) | — | — | 281,386 | 281,386 | — | | | Total | 2,384,755 | 3,996,177 | 1,034,143 | 1,745,256 | 448,313 | | Bryan D. McDonald | Cash Severance (1) | 653,338 | 1,306,675 | — | — | — | | | Accelerated Vesting of Equity Awards (2) | 315,759 | 315,759 | 315,759 | 315,759 | 186,029 | | | Accelerated Vesting of Deferred Compensation (3) | 169,169 | 169,169 | 169,169 | 169,169 | 169,169 | | | Continued Medical and Dental Coverage | 20,704 | 31,056 | — | — | — | | | Split Dollar Benefit (4) | — | — | — | 501,892 | — | | | MIP (5) | — | — | 160,931 | 160,931 | — | | | Total | 1,158,970 | 1,822,659 | 645,859 | 1,147,751 | 355,198 | | Donald J. Hinson | Cash Severance (1) | 549,933 | 1,099,867 | — | — | — | | | Accelerated Vesting of Equity Awards (2) | 237,557 | 237,557 | 237,557 | 237,557 | 139,848 | | | Accelerated Vesting of Deferred Compensation (3) | — | — | — | — | — | | | Continued Medical and Dental Coverage | 13,505 | 20,257 | — | — | — | | | Split Dollar Benefit (4) | — | — | — | 396,420 | — | | | MIP (5) | — | — | 124,115 | 124,115 | — | | | Total | 800,995 | 1,357,681 | 361,672 | 758,092 | 139,848 | | Tony W. Chalfant | Cash Severance (1) | 472,376 | 944,751 | — | — | — | | | Accelerated Vesting of Equity Awards (2) | 288,016 | 288,016 | 288,016 | 288,016 | 119,656 | | | Accelerated Vesting of Deferred Compensation (3) | 147,354 | 147,354 | 147,354 | 147,354 | 147,354 | | | Continued Medical and Dental Coverage | 13,394 | 20,091 | — | — | — | | | Split Dollar Benefit (4) | — | — | — | 334,289 | — | | | MIP (5) | — | — | 116,791 | 116,791 | — | | | Total | 921,140 | 1,400,212 | 552,161 | 886,450 | 267,010 | | Matthew T. Ray | Cash Severance (1) | 376,385 | 752,769 | — | — | — | | | Accelerated Vesting of Equity Awards (2) | 157,088 | 157,088 | 157,088 | 157,088 | — | | | Accelerated Vesting of Deferred Compensation (3) | — | — | — | — | — | | | Continued Medical and Dental Coverage | 9,711 | 14,566 | — | — | — | | | Split Dollar Benefit (4) | — | — | — | 301,515 | — | | | MIP (5) | — | — | 86,535 | 86,535 | — | | | Total | 543,184 | 924,423 | 243,623 | 545,138 | — |

  78. Potential Payments Upon Termination or Change in Control

    (1)The amounts set for in the "Cash Severance" row reflect the sum of cash severance payments to be made pursuant to Messrs. Deuel's, McDonald's, Hinson's, Chalfant's, and Ray's employment agreements. (2)The amounts in the "Accelerated Vesting of Equity Awards" rows are based on Heritage’s common stock closing price of $21.39 on December 29, 2023. As provided in their employment agreements and the 2014 Omnibus Equity Incentive Plan, the NEOs are eligible for accelerated vesting of outstanding equity awards. Pursuant to the applicable employment agreements, for purposes of a termination without cause by the employer or termination for good reason, performance stock units will vest based on actual performance (without proration for duration of employment); for purposes of a qualifying termination in connection with a change in control, performance stock units will vest at target performance (without proration for duration of employment). Because the actual performance is relative to Heritage's peer group and such information is not yet available, estimates in this table are based upon target level performance. (3)The amounts in the "Accelerated Vesting of Deferred Compensation" rows reflect the incremental cost or unvested portion of deferred compensation. (4)The amounts in the "Split Dollar Benefit" rows reflect the death benefit to be paid to the beneficiary designated by the NEO under split-dollar insurance agreement assumes maximum payout of current annual base salary. The value of the accelerated benefit is not determinable and therefore is excluded. (5)The amounts in the "MIP" rows reflect the MIP prorated payment upon death or disability.

  79. CEO Pay Ratio

    CEO Pay Ratio In August 2015, the SEC adopted a rule under the Dodd-Frank Act requiring disclosure of the ratio of the CEO's annual total compensation to the annual total compensation of the median employee. In determining our median employee, a list of all full-time and part-time employees, exclusive of our CEO, Mr. Deuel, was prepared based on active employees included in the Company's payroll system as of December 31, 2023. Gross wages were ranked from highest to lowest to determine the median employee. The annual total compensation of the median employee was then calculated in the same manner as the total compensation disclosed for Mr. Deuel in the Summary Compensation Table shown above. The ratio of the CEO's compensation to the median employee's compensation is as follows:

  80. CEO Pay Ratio

    | Annual Total Compensation of CEO | $1,609,640 | | Annual Total Compensation of the Median Employee | $76,625 | | Ratio of CEO to Median Employee Compensation | 21.0 : 1.0 |

  81. CEO Pay Ratio

    This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. Because the SEC's rules for identifying the median compensated employee and calculating the pay ratio based on that employee's annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio.

  82. Pay Versus Performance

    Pay Versus Performance In accordance with rules adopted by the SEC, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we provide the following disclosure regarding executive compensation actually paid ("CAP") and certain Company performance for the fiscal years listed below. You should refer to our Compensation Discussion and Analysis for a complete description of how executive compensation relates to Company performance and how the Compensation Committee makes its decisions.

  83. Pay Versus Performance

    | Year | Summary Compensation Table Total for PEO (1) | | Compensation Actually Paid (CAP) to PEO | | Average Summary Compensation Table Total for non-PEO NEOs (2) | | Average Compensation Actually Paid to Non-PEO NEOs | | Value of Initial Fixed $100 Investment Based on: | | Net Income (dollars in thousands) | Diluted Earnings per Share (4) | | | | | | | | | | | Company Total Shareholder Return | Peer Group Total Shareholder Return (3) | | | | 2023 | | 1,609,640 | | 1,117,360 | | 759,489 | | 599,782 | $87.68 | $107.99 | $61,755 | $1.75 | | 2022 | | 1,646,631 | | 2,017,896 | | 745,198 | | 862,522 | $119.90 | $111.47 | $81,875 | $2.31 | | 2021 | | 1,431,274 | | 1,328,856 | | 650,852 | | 638,129 | $92.71 | $126.43 | $98,035 | $2.73 | | 2020 | | 1,271,194 | | 1,187,534 | | 599,677 | | 568,540 | $85.94 | $90.82 | $46,570 | $1.29 |

  84. Pay Versus Performance

    (1)For 2020, 2021, 2022, and 2023, Heritage's principal executive officer ("PEO") was Mr. Deuel. (2)For 2020, 2021, and 2022, Heritage's non-PEO NEOs were Messrs. McDonald, Hinson, and Chalfant, and Cindy Hirman. Ms. Hirman was the Chief Banking Officer and she retired in April 2023. For 2023, Heritage's non-PEO NEOs were Messrs. McDonald, Hinson, Chalfant, and Ray. (3)The bank index utilized is the S&P U.S. SmallCap Banks Index. (4)Diluted Earnings per Share is the Company Selected Measure. For 2022, this metric is reported as unadjusted for the items related to talent acquisition. The following table reconciles the 2023 Summary Compensation Table compensation to the Compensation Actually Paid disclosed in the above table.

  85. Pay Versus Performance

    | Year | PEO | | Non PEO NEOs | | Summary Compensation Table Total Compensation | | 1,609,640 | $759,489 | | – Grant Date Fair Value of Stock Awards Granted in Fiscal Year | (381,365) | | (161,499) | | + Fair Value at Fiscal Year-End of Outstanding and Unvested Option Awards and Stock Awards Granted in Fiscal Year | 262,781 | | 115,951 | | + Change in Fair Value of Outstanding and Unvested Stock Awards Granted in Prior Fiscal Years | (304,339) | | (89,118) | | + Change in Fair Value as of Vesting Date of Stock Awards Granted in Prior Fiscal Years for which Applicable Vesting Conditions were Satisfied during the Fiscal Year | (69,357) | | (25,041) | | Compensation Actually Paid | | 1,117,360 | $599,782 |

  86. Pay Versus Performance

    The valuation assumptions used to calculate equity award fair values in the above table are prescribed by Item 402(v) of Regulation S-K and did not materially differ from those disclosed at the time of the grant. The illustrations below provide a graphical description of CAP (as calculated in accordance with the SEC rules) and the following measures: •the Company's and the indexed cumulative total shareholder return (assuming an initial fixed investment of $100); •the Company's Net Income; and •the Company Selected Measure, which is Diluted Earnings per Share. In the Company's assessment, the most important financial measures used to link CAP to our NEOs, for the most recently completed fiscal year, to the Company's performance were the following:

  87. Pay Versus Performance

    | Most Important Financial Performance Measures | | Diluted Earnings per Share | | Net Charge Offs/Average Loans | | Overhead Ratio | | Loan Growth | | Return on Average Tangible Common Equity | | Three-Year Total Shareholder Return |