Donald J. Hinson
About Donald J. Hinson
Donald J. Hinson is Executive Vice President and Chief Financial Officer of Heritage Financial Corporation (HFWA) and Heritage Bank; he has served as CFO since 2007 and as EVP & CFO since 2012, after joining the company in 2005 as Vice President and Controller. He is 63 years old as of the proxy date. Compensation programs tie his pay to objective financial metrics, notably diluted EPS, net charge-offs/average loans, and overhead ratio, with long‑term equity measured on three‑year total shareholder return (TSR) and return on average tangible common equity (ROATCE) versus peers . Company performance highlights: 2024 net income was $43.3M (EPS $1.24) vs. $61.8M (EPS $1.75) in 2023, with asset repositioning losses excluded for incentive metric adjustments; total loans grew 10.7% in 2024 and deposits 1.4% .
| Company Performance Metric | FY 2023 | FY 2024 |
|---|---|---|
| Net Income ($MM) | $61.8 | $43.3 |
| Diluted EPS ($) | $1.75 | $1.24; adjusted to $1.80 for incentives |
| Total Assets ($B) | $7.17 | $7.11 |
| Total Loans, Net ($B) | $4.29 | $4.75 |
| Total Deposits ($B) | $5.60 | $5.68 |
| Pay vs Performance Indicators | 2022 | 2023 | 2024 |
|---|---|---|---|
| Value of $100 Investment – Company TSR | $119.90 | $87.68 | $105.05 |
| Value of $100 Investment – Peer Group TSR | $111.47 | $107.99 | $132.44 |
| Net Income ($MM) | $81.875 | $61.755 | $43.258 |
| Diluted EPS ($) | $2.31 | $1.75 | $1.24 (unadjusted) |
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Heritage Financial/Heritage Bank | EVP & CFO | 2012–present | Led finance during expansion and balance sheet repositioning; performance‑based incentives tied to capital, earnings quality |
| Heritage Financial/Heritage Bank | SVP & CFO | 2007–2012 | Built finance infrastructure and reporting for public company stakeholders |
| Heritage Financial/Heritage Bank | VP & Controller | 2005–2007 | Established controls and financial reporting foundation |
External Roles
- Not disclosed for Mr. Hinson in the proxy; skip per instruction.
Fixed Compensation
| Component | 2023 | 2024 | Notes |
|---|---|---|---|
| Base Salary ($) | $396,420 (effective 7/1/2023) | $416,240 (effective 7/1/2024) | 5% merit increase |
| Target Bonus (% of Salary) | 40% | 40% | Per employment agreement |
| Actual Annual Cash Incentive Paid ($) | $124,115 | $152,780 (37.6% of 2024 base salary earned) | |
| Total Reported Compensation ($) | $786,295 | $798,685 |
Perquisites and Other Benefits (2024): employer 401(k) match $10,350; cell phone $360; deferred compensation contribution $69,373; executive life insurance $658; total other compensation $80,741 .
Performance Compensation
| MIP Metric (2024) | Weighting | Threshold | Target | Maximum | Actual | % of Target Achieved | Payout Impact |
|---|---|---|---|---|---|---|---|
| Diluted EPS | 40% | $1.50 | $2.00 | $2.50 | $1.24 unadj.; adjusted $1.80 for incentives | 80% | Contributed to 37.6% bonus outcome |
| Net Charge‑Offs/Average Loans | 20% | 0.11% | 0.06% | 0.01% | 0.06% | 100% | Same as above |
| Overhead Ratio | 40% | 2.39% | 2.24% | 2.04% | 2.22% | 105% | Same as above |
| Equity Incentives | Grant Date | Target Mix | Units Granted | Vesting | Metric Details |
|---|---|---|---|---|---|
| 2024 RSUs | 02/26/2024 | 50% of total | 4,366 RSUs | Ratable over 3 years; vests March 15 annually | Service‑based retention |
| 2024 PSUs | 02/26/2024 | 50% of total | 4,366 PSUs (target) | Cliff vest after 3 years (2026) | ROATCE relative percentile (50% weight) and 3‑yr TSR relative percentile (50% weight); threshold 25th, target 50th, max 75th; payout 50–150% of target, linear 2% per percentile |
| 2022 PSU Payout | N/A | N/A | 2,029 target; 1,622 earned (80%) | Vested post‑measurement 2022–2024 | TSR achieved 62nd percentile (124%); ROATCE 34th percentile (36%); combined 80% payout |
Grant Date Fair Value (2024): RSUs $79,287; PSUs $78,413; combined $157,700 .
Equity Ownership & Alignment
| Ownership Detail | Amount | Notes |
|---|---|---|
| Shares Beneficially Owned | 41,734 | Direct/indirect per SEC rules |
| RSUs (vesting within 60 days of 3/10/2025) | 5,011 | Included in beneficial ownership per rule |
| Total Beneficial Ownership | 46,745 | Less than 1% of shares outstanding |
| Shares Outstanding (Record Date) | 33,990,827 | Proxy record date count |
| Ownership % of Shares Outstanding | ~0.14% | Derived from 46,745 ÷ 33,990,827 based on cited figures |
| Stock Ownership Guidelines | 1.5× base salary for non‑CEO NEOs; retain ≥50% of shares until compliant | All NEOs in compliance as of 12/31/2024 |
| Anti‑Hedging/Pledging | Hedging prohibited; no pledging by NEOs or directors reported | Insider Trading Policy |
| Clawback Policy | Enhanced and effective Nov 7, 2023 | Filed with 10‑K |
Outstanding Equity (12/31/2024):
- Unvested RSUs: 1,700 (2023 grant), 4,366 (2024 grant), plus earlier grants; RSUs vest ratably over 3 years each March 15 .
- Unearned PSUs: 2,549 (2023 grant target), 4,366 (2024 grant target); PSUs measured vs peers and cliff vest after three years .
| Vesting Calendar (indicative) | RSUs (2024 grant) | PSUs (2024 grant) |
|---|---|---|
| 03/15/2025 | ~1/3 of 4,366 = 1,455 RSUs (service) | None (cliff 2026) |
| 03/15/2026 | ~1/3 of 4,366 = 1,455 RSUs | PSU payout measured/vests post 2026 cycle |
| 03/15/2027 | ~1/3 of 4,366 = 1,456 RSUs | N/A |
Note: RSU tranches are approximate one‑third splits; actual rounding per award agreements .
Employment Terms
| Term | Provision |
|---|---|
| Agreement Type & Status | Non‑CEO NEO employment agreement; identical terms for non‑CEO NEOs |
| Current Base Salary | $416,240 (as adjusted for 2024) |
| Target Annual Bonus | 40% of base salary |
| Term & Auto‑Renewal | Agreement term listed as June 30, 2022 for Mr. Hinson; auto‑extends one year each July 1 unless 90 days’ prior non‑renewal notice |
| Severance (No CIC) | Cash severance equal to 100% of Base Compensation, paid over 24 months; 12 months continued medical/dental; accelerated vesting of equity (based on actual performance) and unvested deferred comp contributions |
| Severance (Qualifying CIC) | Lump sum 200% of Base Compensation; 18 months continued medical/dental; double‑trigger equity treatment (target for performance awards if not assumed or upon qualifying termination); accelerated vesting of deferred comp |
| Non‑Compete | 12 months post‑termination; reduces to 12 months in CIC |
| Non‑Solicit | 24 months post‑termination; reduces to 12 months in CIC; terminates on final day of employment if non‑renewal leads to termination post term expiration |
| Clawback & 280G Cutback | Clawback provision; automatic reduction if net after‑tax better under 280G/4999 |
| Split‑Dollar Life Insurance | Death benefit up to current base salary; accelerated benefit up to $500,000 for qualifying illness events |
Estimated Payments (12/31/2024 scenario analysis):
| Scenario | Total Estimated Payment ($) |
|---|---|
| Termination Without Cause / Good Reason (No CIC) | $966,915 |
| Qualifying Termination in Connection with CIC | $1,538,714 |
| Disability | $537,112 |
| Death | $953,352 (includes split‑dollar) |
| CIC – No Termination | $219,128 (equity acceleration only) |
Deferred Compensation
| Item | Detail |
|---|---|
| Plan Structure | Company performance‑based contributions (10% min, 20% target, 35% max of salary) tied to diluted EPS and net charge‑offs/avg loans |
| Crediting Rate | Moody’s Seasoned Aaa Corporate Bond Yield at Jan 1 of each year |
| 2024 Contributions (based on 2023 performance) | $69,373 for Hinson (87.5% of target) |
| 2025 Approved Contributions (based on 2024 performance) | $74,923 for Hinson |
| Vesting | Hinson’s company contributions fully vested |
| Aggregate Balance (12/31/2024) | $1,107,301 |
Compensation Peer Group (Benchmarking)
| Peer Banks (approved 2023; used for 2023–2024 pay decisions) |
|---|
| Amerant Bancorp Inc.; Banc of California, Inc.; Bank of Marin Bancorp; Byline Bancorp, Inc.; Enterprise Financial Services Corp.; Premier Financial Corp.; First Mid Bancshares, Inc.; Heritage Commerce Corp.; Lakeland Financial Corporation; Mercantile Bank Corporation; Old Second Bancorp, Inc.; Origin Bancorp, Inc.; Seacoast Banking Corporation of Florida; S&T Bancorp, Inc.; 1st Source Corporation; Stock Yards Bancorp, Inc.; TriCo Bancshares; Univest Financial Corporation; Veritex Holdings, Inc.; Southside Bancshares, Inc. |
Performance‑vesting equity uses a broader, asset‑size‑based peer set to mitigate M&A churn during the three‑year measurement window .
Say‑on‑Pay & Shareholder Feedback
| Item | Result |
|---|---|
| 2024 Say‑on‑Pay Approval | >98% approval |
| Shareholder Outreach | 11th annual cycle; 15 largest institutions engaged (~54% outstanding shares); feedback positive on succession and compensation |
Risk Indicators & Red Flags
- Clawback policy updated to align with SEC/Nasdaq rules; effective Nov 7, 2023 .
- No hedging permitted; no pledging reported among NEOs/directors .
- Best practices: no tax gross‑ups; no option repricing/reloads/exchanges without shareholder approval; heavy emphasis on variable, performance‑based pay .
- Related‑party lending adheres to Regulation O; $6.5M in loans outstanding to directors/executives as of 12/31/2024, all performing .
Investment Implications
- Pay‑for‑performance alignment is robust: 2024 cash bonus driven by EPS, overhead ratio, and credit performance with explicit thresholds/targets; equity is 50% PSUs tied to relative TSR and ROATCE, mitigating absolute rate-cycle impacts and incentivizing peer‑relative value creation .
- Retention risk appears contained: fully vested deferred comp for Hinson, ongoing RSU/PSU schedules, and auto‑renew employment terms with standard non‑compete/non‑solicit; severance economics are moderate (1× without CIC; 2× with CIC) relative to peers, reducing overhang while providing continuity .
- Insider selling pressure around vest dates is predictable: annual RSU tranches vest each March 15 and PSUs cliff vest after three years; anti‑hedging and no pledging policies reduce misalignment risks, but monitor post‑vesting Form 4 activity to gauge liquidity demand .
- Balance sheet actions in 2024 lowered reported EPS but were excluded for incentive calculations (adjusted EPS $1.80), signaling Compensation Committee discretion to isolate strategic repositioning from pay outcomes; investors should weigh improved core earnings vs headline EPS in assessing incentive integrity .
- High say‑on‑pay support and independent consultant oversight imply low governance friction; continued focus on ROATCE and TSR relative performance should align CFO incentives with shareholder value in a normalizing rate environment .