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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Date of Report (Dated of earliest event reported): July 20, 2023
HERITAGE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
 
Commission File Number 000-29480
Washington 91-1857900
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
201 Fifth Avenue SW,OlympiaWA 98501
(Address of principal executive offices) (Zip Code)
(360) 943-1500
(Registrant’s telephone number, including area code) 

Not applicable
(Former name or former address, if changed since last report) 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12 (b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, no par valueHFWANASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.02    Results of Operations and Financial Condition
    On July 20, 2023, Heritage Financial Corporation (“Heritage”) issued a press release announcing its financial results for the second quarter and year ended June 30, 2023.
A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 7.01    Regulation FD Disclosure
    Heritage is filing an investor slide presentation that it reviewed in conjunction with its earnings release conference call on July 20, 2023.
A copy of the presentation materials is furnished herewith as Exhibit 99.2 and is incorporated herein by reference.

Item 8.01    Other Events
    On July 20, 2023, Heritage issued a press release announcing a regular quarterly cash dividend of $0.22 per common share. The dividend will be paid on August 16, 2023 to shareholders of record at the close of business on August 2, 2023.
A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01     Financial Statements and Exhibits
(d) Exhibits
    The following exhibit is being filed herewith and this list shall constitute the exhibit index:


SIGNATURES
    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HERITAGE FINANCIAL CORPORATION
Date:
July 20, 2023/S/    JEFFREY J. DEUEL
Jeffrey J. Deuel
President and Chief Executive Officer
(Duly Authorized Officer)



hfwarevisedlogoa01a02a.jpg
FOR IMMEDIATE RELEASE
DATE: July 20, 2023

HERITAGE FINANCIAL ANNOUNCES SECOND QUARTER 2023 RESULTS AND DECLARES REGULAR CASH DIVIDEND

•Net income was $16.8 million, or $0.48 per diluted share, for the second quarter of 2023 compared to $20.5 million, or $0.58 per diluted share, for the first quarter of 2023.
•Loans receivable increased $123.9 million, or 3.0% in the second quarter of 2023.
•Capital remains strong with a leverage ratio of 9.9% and a total capital ratio of 14.1% at June 30, 2023.
•The ratio of nonperforming assets to total assets at June 30, 2023 and March 31, 2023 was 0.07%.
•Net interest margin was 3.56% for the second quarter of 2023 compared to 3.91% for the first quarter of 2023.
•Cost of total deposits was 0.61% for the second quarter of 2023 compared to 0.31% for the first quarter of 2023.
•Total deposits decreased $193.5 million or 3.3% in the second quarter of 2023.
•Declared a regular cash dividend of $0.22 per share on July 19, 2023.

Olympia, WA - Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank (the "Bank"), today reported net income of $16.8 million for the second quarter of 2023 compared to $20.5 million for the first quarter of 2023 and $18.6 million for the second quarter of 2022. Diluted earnings per share for the second quarter of 2023 were $0.48 compared to $0.58 for the first quarter of 2023 and $0.52 for the second quarter of 2022.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "Results for the second quarter continue to demonstrate the strength of our business model. We have a balance sheet with a legacy of strong core deposits and ample liquidity which allows us to maintain loan production. Although we are experiencing the industry-wide pressure on funding costs, we are encouraged with the ongoing development of customer relationships, particularly in the markets where we’ve hired banking teams over the past year, such as the Portland, Eugene and Boise MSAs. We believe our continued focus on prudent risk management, coupled with strategic and measured growth, will benefit our long-term returns for shareholders.
We are proud to report that Heritage Bank has partnered with Francis + Clare Place to provide financing for 61 affordable housing units in Portland, Oregon. These units will house individuals who have been living on the street and will provide substantial social safety-net services to help them reintegrate into the community. This Catholic Charities of Oregon sponsored transaction is the second of two complexes located in an area that has been especially hurt by homelessness."

1

Financial Highlights
The following table provides financial highlights at the dates and for the periods indicated:
As of or for the Quarter Ended
June 30,
2023		March 31,
2023		June 30,
2022
(Dollars in thousands, except per share amounts)
Net income$16,846 $20,457 $18,584 
Pre-tax, pre-provision income (1)
$21,780 $26,495 $21,357 
Diluted earnings per share$0.48 $0.58 $0.52 
Return on average assets (2)
0.95 %1.17 %1.01 %
Pre-tax, pre-provision return on average assets (1) (2)
1.22 %1.52 %1.16 %
Return on average common equity (2)
8.19 %10.21 %9.19 %
Return on average tangible common equity (1) (2)
12.04 %15.05 %13.68 %
Net interest margin (2)
3.56 %3.91 %3.04 %
Cost of total deposits (2)
0.61 %0.31 %0.09 %
Efficiency ratio65.5 %61.1 %62.6 %
Noninterest expense to average total assets (2)
2.32 %2.39 %1.94 %
Total assets$7,115,410 $7,236,806 $7,316,467 
Loans receivable, net$4,204,936 $4,083,003 $3,834,368 
Total deposits$5,595,543 $5,789,022 $6,330,190 
Loan to deposit ratio (3)
76.0 %71.3 %61.2 %
Book value per share$23.39 $23.53 $22.94 
Tangible book value per share (1)
$16.34 $16.48 $15.83 
(1) See Non-GAAP Financial Measures section herein.
(2) Annualized.
(3) Loans receivable divided by total deposits.
Balance Sheet
Cash and cash equivalents decreased $193.1 million, or 64.1%, to $108.4 million at June 30, 2023 from $301.5 million at March 31, 2023 due primarily to an increase in loans receivable and a decrease in deposits, partially offset by an increase in borrowings.
Total investment securities decreased $47.4 million, or 2.3%, to $2.03 billion at June 30, 2023 from $2.08 billion at March 31, 2023 due primarily to maturities and prepayments. There were no investment securities purchased in the second quarter of 2023. The total of net unrealized losses in available for sale and net unrecognized losses in held to maturity investments increased $32.6 million due primarily to a decline in fair values of investment securities available for sale and held to maturity since March 31, 2023 due to changes in market rates.
The following table summarizes the Company's investment securities at the dates indicated including change in net unrealized loss and net unrecognized loss:
 June 30, 2023March 31, 2023
 Amortized CostNet Unrealized LossFair ValueAmortized CostNet Unrealized LossFair Value$ Change in Net Unrealized Loss
 (Dollars in thousands)
Investment securities available for sale:
U.S. government and agency securities$68,514 $(4,255)$64,259 $68,514 $(3,964)$64,550 $(291)
Municipal securities145,681 (15,666)130,015 146,525 (14,028)132,497 (1,638)
Residential CMO and MBS(1)
465,625 (54,653)410,972 481,380 (47,668)433,712 (6,985)
Commercial CMO and MBS(1)
698,833 (50,492)648,341 704,156 (40,659)663,497 (9,833)
Corporate obligations4,000 (226)3,774 4,000 (183)3,817 (43)
Other asset-backed securities19,491 (302)19,189 20,394 (395)19,999 93 
Total1,402,144 (125,594)1,276,550 1,424,969 (106,897)1,318,072 (18,697)
2

June 30, 2023March 31, 2023
Amortized CostNet
Unrecognized Loss		Fair ValueAmortized CostNet
Unrecognized Loss		Fair Value$ Change in Net Unrecognized Loss
(Dollars in thousands)
Investment securities held to maturity:
U.S. government and agency securities151,005 (30,245)120,760 150,969 (28,298)122,671 (1,947)
Residential CMO and MBS(1)
280,032 (17,219)262,813 285,337 (12,303)273,034 (4,916)
Commercial CMO and MBS(1)
323,239 (42,002)281,237 323,857 (34,915)288,942 (7,087)
Total754,276 (89,466)664,810 760,163 (75,516)684,647 (13,950)
Total investment securities$2,156,420 $(215,060)$1,941,360 $2,185,132 $(182,413)$2,002,719 $(32,647)
(1) U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations.

Loans receivable increased $123.9 million, or 3.0% in the second quarter of 2023, due to a combination of loan originations and net advances on loans outstanding. New loans funded in the second quarter of 2023 and first quarter of 2023 were $133.6 million and $138.1 million, respectively. Net advances on loans outstanding increased $47.8 million to $60.9 million during the second quarter of 2023 as compared to $13.1 million in the first quarter of 2023. Loan prepayments increased slightly during the second quarter of 2023 to $52.3 million, compared to $41.5 million during the first quarter of 2023.
Non-owner occupied CRE loans increased by $42.7 million, or 2.7%, during the second quarter of 2023 due to new loan originations of $46.2 million offset partially by loan repayments. Commercial and multifamily construction loans increased by $36.5 million, or 13.5%, due primarily to advances on outstanding loans during the second quarter of 2023. Total new commitments for commercial and multifamily construction loans were $58.5 million in the second quarter of 2023. In addition, commercial and industrial loans increased $23.0 million, or 3.4%, due to new loan originations of $34.4 million offset partially by loan repayments.
The following table summarizes the Company's loans receivable, net at the dates indicated:
June 30, 2023March 31, 2023Change
Balance% of TotalBalance% of Total$%
(Dollars in thousands)
Commercial business:
Commercial and industrial$708,021 16.7 %$684,998 16.6 %$23,023 3.4 %
SBA PPP567 — 900 — (333)(37.0)
Owner-occupied commercial real estate ("CRE")958,912 22.6 949,064 23.0 9,848 1.0 
Non-owner occupied CRE1,644,490 38.6 1,601,789 38.8 42,701 2.7 
Total commercial business3,311,990 77.9 3,236,751 78.4 75,239 2.3 
Residential real estate
375,659 8.8 363,777 8.8 11,882 3.3 
Real estate construction and land development:
Residential
78,660 1.9 72,926 1.8 5,734 7.9 
Commercial and multifamily
307,041 7.2 270,547 6.6 36,494 13.5 
Total real estate construction and land development385,701 9.1 343,473 8.4 42,228 12.3 
Consumer177,994 4.2 183,471 4.4 (5,477)(3.0)
Loans receivable4,251,344 100.0 %4,127,472 100.0 %123,872 3.0 
Allowance for credit losses on loans(46,408)(44,469)(1,939)4.4 
Loans receivable, net$4,204,936 $4,083,003 $121,933 3.0 %

Total deposits decreased $193.5 million, or 3.3%, from March 31, 2023. The decrease was due to competitive pricing pressures and customers moving excess funds to alternative higher yielding investments as well as general decreases in individual customer balances which included large capital expenditures and tax payments.
3

Certificates of deposit increased $44.8 million, or 11.3%, from March 31, 2023. The increase in certificates of deposits included transfers from non-maturity deposit accounts. Brokered deposits decreased $7.6 million, or 14.5%, to $44.7 million at June 30, 2023 from $52.3 million at March 31, 2023.
The following table summarizes the Company's total deposits at the dates indicated:
June 30, 2023March 31, 2023Change
Balance (1)
% of TotalBalance% of Total$%
(Dollars in thousands)
Noninterest demand deposits$1,857,492 33.2 %$1,982,909 34.3 %$(125,417)(6.3)%
Interest bearing demand deposits1,618,539 28.9 1,675,393 28.9 (56,854)(3.4)
Money market accounts1,143,284 20.4 1,155,559 20.0 (12,275)(1.1)
Savings accounts535,065 9.6 578,807 10.0 (43,742)(7.6)
Total non-maturity deposits5,154,380 92.1 5,392,668 93.2 (238,288)(4.4)
Certificates of deposit441,163 7.9 396,354 6.8 44,809 11.3 
Total deposits$5,595,543 100.0 %$5,789,022 100.0 %$(193,479)(3.3)%
(1) Deposit balances include deposits held for sale of $15.9 million and $17.2 million at June 30, 2023 and March 31, 2023, respectively.

Total borrowings increased $66.9 million, or 17.5%, to $450.0 million at June 30, 2023 compared to $383.1 million at March 31, 2023. All borrowings at March 31, 2023 were advances from the Federal Home Loan Bank ("FHLB"). During the second quarter of 2023, the Company transferred all borrowings to the Federal Reserve Bank ("FRB") Bank Term Funding Program (“BTFP”) due to advantageous terms and conditions. The BTFP offers loans of up to one year in length to institutions pledging eligible investment securities. The advance rate on the collateral is at par value. The average rate on borrowings from the BTFP was 4.72% as compared to an average rate of 5.15% for FHLB borrowings during the second quarter of 2023.
Total stockholders' equity decreased $6.3 million, or 0.8%, to $819.7 million at June 30, 2023 compared to $826.1 million at March 31, 2023 due primarily to an increase of $14.7 million in accumulated other comprehensive loss as a result of declining fair values of available for sale investment securities and $7.8 million in dividends paid offset partially by $16.8 million of net income recognized for the quarter.
The Company and Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as “well-capitalized”.
The following table summarizes capital ratios for the Company at the dates indicated:
June 30,
2023		March 31,
2023		Change
Stockholders' equity to total assets11.5 %11.4 %0.1 %
Tangible common equity to tangible assets (1)
8.3 8.3 — 
Common equity tier 1 capital ratio (2)
12.8 12.9 (0.1)
Leverage ratio (2)
9.9 9.9 — 
Tier 1 capital ratio (2)
13.2 13.3 (0.1)
Total capital ratio (2)
14.1 14.1 — 
(1) See Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.

Allowance for Credit Losses and Provision for Credit Losses
The ACL as a percentage of loans was 1.09% at June 30, 2023 compared to 1.08% at March 31, 2023. During the second quarter of 2023, the Company recorded a $1.9 million provision for credit losses, compared to a $1.8 million provision for credit losses during the first quarter of 2023 and a $1.2 million reversal of the provision for credit losses during second quarter of 2022. The increase in the provision for credit losses during the second quarter of 2023 was primarily driven by growth in loans receivable, net and changes in loan mix primarily due to the increases in non-owner occupied CRE, commercial and multifamily construction, and commercial and industrial loans.
The ACL on unfunded commitments ("unfunded") decreased during the second quarter of 2023 compared to the first quarter of 2023 due primarily to an increase in loan utilization rates.

4

The following table provides detail on the changes in the ACL on loans and the ACL on unfunded and the related provision for (reversal of) credit losses for the periods indicated:
As of or for the Quarter Ended
June 30, 2023March 31, 2023June 30, 2022
ACL on LoansACL on UnfundedTotalACL on LoansACL on UnfundedTotalACL on LoansACL on UnfundedTotal
(Dollars in thousands)
Balance, beginning of period$44,469 $1,856 $46,325 $42,986 $1,744 $44,730 $40,333 $1,552 $41,885 
Provision for (reversal of) credit losses1,988 (79)1,909 1,713 112 1,825 (649)(555)(1,204)
(Net charge-offs) recoveries(49)— (49)(230)— — (230)12 — 12 
Balance, end of period$46,408 $1,777 $48,185 $44,469 $1,856 $46,325 $39,696 $997 $40,693 

Credit Quality
The ratio of classified loans increased slightly to 1.38% at June 30, 2023 as compared to 1.18% at March 31, 2023. Classified loans include loans rated substandard or worse.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
June 30, 2023March 31, 2023
Balance% of TotalBalance% of Total
(Dollars in thousands)
Risk Rating:
Pass$4,108,068 96.6 %$3,981,816 96.5 %
Special Mention84,623 2.0 96,832 2.3 
Substandard58,653 1.4 48,824 1.2 
Total$4,251,344 100.0 %$4,127,472 100.0 %

Nonperforming assets to total assets was 0.07% at both June 30, 2023 and March 31, 2023 compared to 0.14% at June 30, 2022. Nonperforming assets at June 30, 2023, March 31, 2023 and June 30, 2022 consisted only of nonaccrual loans.
Changes in nonaccrual loans during the periods indicated were as follows:
Quarter Ended
June 30,
2023		March 31,
2023		June 30,
2022
(In thousands)
Balance, beginning of period$4,815 $5,906 $16,527 
Additions— 468 720 
Net principal payments and transfers to accruing status(185)(909)(5,964)
Payoffs— (650)(691)
Charge-offs— — (117)
Balance, end of period$4,630 $4,815 $10,475 

Liquidity
Total liquidity sources available at June 30, 2023 were $2.75 billion. This includes internal as well as external sources of liquidity. The Company has access to FHLB advances, the FRB Discount Window and BTFP. The Company's available liquidity sources at June 30, 2023 represented a coverage ratio of 49.2% of total deposits and 150.6% of estimated uninsured deposits.

5

The following table summarizes the Company's available liquidity:
Quarter Ended
June 30,
2023		March 31,
2023		December 31,
2022
(Dollars in thousands)
FRB borrowing availability$859,730 $640,635 $46,827 
FHLB borrowing availability(1)
1,216,990 1,197,964 1,226,234 
Unencumbered investment securities available for sale(2)
872,109 1,116,013 1,323,947 
Cash and cash equivalents108,378 301,481 103,590 
Fed funds line borrowing availability with correspondent banks145,000 215,000 215,000 
Total sources of liquidity3,202,207 3,471,093 2,915,598 
Less: Borrowings outstanding(450,000)(383,100)— 
Total liquidity$2,752,207 $3,087,993 $2,915,598 
(1) Includes FHLB borrowing availability of $1.22 billion at June 30, 2023 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.10 billion.
(2) Investment securities available for sale at fair value.

Net Interest Income and Net Interest Margin
Net interest income decreased $4.0 million, or 6.7%, during the second quarter of 2023 compared to the first quarter of 2023. In addition, net interest margin decreased 35 basis points to 3.56% from 3.91% as compared to the prior quarter. The decrease in net interest income was due primarily to a $4.1 million increase in interest expense on deposits and $3.3 million increase in interest expense on borrowings. The increase in interest expense on deposits was due to a 43 basis point increase in average rates due to competitive rate pressures. The average cost of interest bearing deposits increased from 0.49% to 0.92%. The increase in interest expense on borrowings was due to an increase in average balances. The average cost of borrowings declined 5 basis points from 4.92% to 4.87% as the Company transferred borrowings from the FHLB to the FRB's BTFP during the second quarter of 2023 due to a lower borrowing rate. The increase in interest expense was partially offset by a $3.4 million increase in interest income, primarily due to a $3.2 million increase in interest income on loans receivable, net. The average balance of loans receivable, net increased by $106.2 million and the average yield on loans receivable, net increased 12 basis points to 5.19% during the second quarter of 2023.
Net interest income increased $5.8 million, or 11.5%, during the second quarter of 2023 compared to the second quarter of 2022 and the net interest margin increased 52 basis points during this same period. The increase was due primarily to an increase in yields earned on interest earning assets following increases in market interest rates and a shift into higher yielding interest earning assets. This was partially offset by an increase in interest expense due to an increase in deposit rates and borrowing expense.
The following table provides relevant net interest income information for the periods indicated:
 Quarter Ended
 June 30, 2023March 31, 2023June 30, 2022
 Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
(Dollars amounts in thousands)
Interest Earning Assets:
Loans receivable, net (2)(3)
$4,145,556 $53,623 5.19 %$4,039,395 $50,450 5.07 %$3,812,045 $40,890 4.30 %
Taxable securities1,989,297 14,774 2.98 2,007,339 14,657 2.96 1,450,328 7,607 2.10 
Nontaxable securities (3)
71,803 520 2.90 82,893 586 2.87 137,429 893 2.61 
Interest earning deposits90,754 1,154 5.10 83,376 972 4.73 1,213,156 2,342 0.77 
Total interest earning assets6,297,410 70,071 4.46 %6,213,003 66,665 4.35 %6,612,958 51,732 3.14 %
Noninterest earning assets845,455 848,956 772,658 
Total assets$7,142,865 $7,061,959 $7,385,616 
Interest Bearing Liabilities:
Certificates of deposit$421,451 $2,483 2.36 %$350,206 $1,224 1.42 %$321,926 $324 0.40 %
Savings accounts551,201 157 0.11 601,166 142 0.10 652,407 88 0.05 
Interest bearing demand and money market accounts2,782,353 5,967 0.86 2,829,198 3,162 0.45 3,067,373 1,001 0.13 
Total interest bearing deposits3,755,005 8,607 0.92 3,780,570 4,528 0.49 4,041,706 1,413 0.14 
Junior subordinated debentures21,577 499 9.28 21,501 482 9.09 21,287 239 4.50 
6

 Quarter Ended
 June 30, 2023March 31, 2023June 30, 2022
 Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
(Dollars amounts in thousands)
Securities sold under agreement to repurchase39,755 63 0.64 43,202 47 0.44 48,272 32 0.27 
Borrowings417,896 5,078 4.87 145,605 1,766 4.92 — — — 
Total interest bearing liabilities4,234,233 14,247 1.35 %3,990,878 6,823 0.69 %4,111,265 1,684 0.16 %
Noninterest demand deposits1,900,640 2,068,688 2,349,746 
Other noninterest bearing liabilities183,250 189,893 113,644 
Stockholders’ equity824,742 812,500 810,961 
Total liabilities and stockholders’ equity$7,142,865 $7,061,959 $7,385,616 
Net interest income and spread$55,824 3.11 %$59,842 3.66 %$50,048 2.98 %
Net interest margin3.56 %3.91 %3.04 %
(1)Annualized; average balances are calculated using daily balances.
(2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $726,000, $752,000 and $2.4 million for the second quarter of 2023, first quarter of 2023 and second quarter of 2022, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

Noninterest Income
Noninterest income decreased during the second quarter of 2023 from the first quarter of 2023 due primarily to a $1.7 million decrease in other income as a result of a $1.6 million gain from the sale of Visa Inc. Class B common stock during the first quarter of 2023.
Noninterest income increased during the second quarter of 2023 compared to the same period in 2022 due primarily to higher deposit service charges and an increase in FHLB dividend income included in other income. The following table presents the key components of noninterest income and the change for the periods indicated:
Quarter EndedQuarter Over Quarter ChangePrior Year Quarter Change
June 30,
2023		March 31,
2023		June 30,
2022		$% $%
(Dollar amounts in thousands)
Service charges and other fees$2,682 $2,624 $2,577 $58 2.2 %$105 4.1 %
Card revenue2,123 2,000 2,146 123 6.2 (23)(1.1)
Loss on sale of investment securities— (286)— 286 (100.0)— (100.0)
Gain on sale of loans, net101 49 219 52 106.1 (118)(53.9)
Interest rate swap fees115 53 26 62 117.0 89 342.3 
Bank owned life insurance income837 709 764 128 18.1 73 9.6 
Gain on sale of other assets, net— 2 — (2)(100.0)— — 
Other income1,423 3,107 1,284 (1,684)(54.2)139 10.8 
Total noninterest income$7,281 $8,258 $7,016 $(977)(11.8)%$265 3.8 %

Noninterest Expense
Noninterest expense decreased $0.3 million or 0.7% during the second quarter of 2023 from the first quarter of 2023 due primarily to a decrease in compensation and employee benefits resulting from a decrease in the accrual for incentive-based compensation and decrease in payroll taxes offset partially by an increase in salary expense due to annual merit increases in base pay. Occupancy and equipment expense decreased due to a decrease in maintenance costs related to winter weather conditions experienced in the first quarter of 2023. Other expense increased due to an increase in customer account loss expense in the second quarter of 2023.
Noninterest expense increased $5.6 million or 15.7% during the second quarter of 2023 compared to the same period in 2022 due primarily to an increase in compensation and employee benefits resulting from an increase in the number of full-time equivalent employees including the addition of commercial and relationship banking teams in 2023 and an increase in salaries
7

and wages due to upward market pressure. Occupancy and equipment expense increased due to the expansion into Eugene, Oregon and Boise, Idaho. Data processing costs increased due primarily to the expansion of digital services including the addition of the ability to open accounts online. Federal deposit insurance premiums increased due to the increase in the assessment rate starting in January 2023. Other expense increased due to an increase in customer account loss expense, employee related expenses which included additional expenses related to calling efforts for the newly added teams, as well as a general increase in operating costs in the second quarter of 2023 as compared to the same period in 2022.
The following table presents the key components of noninterest expense and the change for the periods indicated:
Quarter EndedQuarter Over Quarter ChangePrior Year Quarter Change
June 30,
2023		March 31,
2023		June 30,
2022		$%$%
(Dollar amounts in thousands)
Compensation and employee benefits$24,781 $25,536 $21,778 $(755)(3.0)%$3,003 13.8 %
Occupancy and equipment4,666 4,892 4,171 (226)(4.6)495 11.9 
Data processing4,500 4,342 4,185 158 3.6 315 7.5 
Marketing441 402 344 39 9.7 97 28.2 
Professional services751 628 529 123 19.6 222 42.0 
State/municipal business and use tax1,054 1,008 867 46 4.6 187 21.6 
Federal deposit insurance premium797 850 425 (53)(6.2)372 87.5 
Amortization of intangible assets623 623 704 — — (81)(11.5)
Other expense3,712 3,324 2,704 388 11.7 1,008 37.3 
Total noninterest expense$41,325 $41,605 $35,707 $(280)(0.7)%$5,618 15.7 %

Income Tax Expense
Income tax expense decreased during the second quarter of 2023 compared to the first quarter of 2023 and the same period in 2022 due primarily to a lower effective income tax rate during the second quarter of 2023 following a decrease in pre-tax income which increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and low-income housing tax credits. The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter EndedQuarter Over Quarter ChangePrior Year Quarter Change
June 30,
2023		March 31,
2023		June 30,
2022		$%$%
(Dollar amounts in thousands)
Income before income taxes$19,871 $24,670 $22,561 $(4,799)(19.5)%$(2,690)(11.9)%
Income tax expense$3,025 $4,213 $3,977 $(1,188)(28.2)%$(952)(23.9)%
Effective income tax rate15.2 %17.1 %17.6 %(1.9)%(11.1)%(2.4)%(13.6)%

Dividends
On July 19, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.22 per share. The dividend is payable on August 16, 2023 to shareholders of record as of the close of business on August 2, 2023.

Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, July 20, 2023 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 536813 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through July 27, 2023 by dialing (866) 813-9403 -- access code 925696.


8

About Heritage Financial
Heritage Financial Corporation is an Olympia-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a branch network of 51 banking offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island. Heritage’s stock is traded on the NASDAQ Global Select Market under the symbol “HFWA”. More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.

Contact
Jeffrey J. Deuel, President and Chief Executive Officer, (360) 943-1500
Donald J. Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause the Company’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: changes in general economic conditions, either nationally or in our market areas, including as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as supply chain disruptions; higher inflation and the current and future monetary policies of the Federal Reserve in response thereto; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; changes in the interest rate environment; the quality and composition of our securities portfolio and the impact of any adverse changes including market liquidity within the securities markets; legislative and regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; credit and interest rate risks associated with the Company’s businesses, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; and other factors described in Heritage's latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission-which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to the Company and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2023 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company’s operating and stock price performance.
9

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollar amounts in thousands, except shares)
June 30,
2023		March 31,
2023		December 31,
2022
Assets
Cash on hand and in banks$73,464 $68,969 $74,295 
Interest earning deposits 34,914 232,512 29,295 
Cash and cash equivalents108,378 301,481 103,590 
Investment securities available for sale, at fair value (amortized cost of $1,402,144, $1,424,969, and $1,460,033, respectively)
1,276,550 1,318,072 1,331,443 
Investment securities held to maturity, at amortized cost (fair value of $664,810, $684,647, and $673,434, respectively)
754,276 760,163 766,396 
Total investment securities2,030,826 2,078,235 2,097,839 
Loans held for sale752 — — 
Loans receivable4,251,344 4,127,472 4,050,858 
Allowance for credit losses on loans(46,408)(44,469)(42,986)
Loans receivable, net4,204,936 4,083,003 4,007,872 
Premises and equipment, net79,401 80,094 76,930 
Federal Home Loan Bank stock, at cost8,373 23,697 8,916 
Bank owned life insurance122,905 122,767 122,059 
Accrued interest receivable18,969 18,548 18,547 
Prepaid expenses and other assets293,950 281,438 296,181 
Other intangible assets, net5,981 6,604 7,227 
Goodwill 240,939 240,939 240,939 
Total assets$7,115,410 $7,236,806 $6,980,100 
Liabilities and Stockholders' Equity
Deposits$5,579,657 $5,771,787 $5,907,420 
Deposits held for sale15,886 17,235 17,420 
Total deposits5,595,543 5,789,022 5,924,840 
Borrowings450,000 383,100 — 
Junior subordinated debentures21,619 21,546 21,473 
Securities sold under agreement to repurchase38,215 39,161 46,597 
Accrued expenses and other liabilities190,300 177,895 189,297 
Total liabilities6,295,677 6,410,724 6,182,207 
Common stock550,103 550,869 552,397 
Retained earnings367,085 358,010 345,346 
Accumulated other comprehensive loss, net(97,455)(82,797)(99,850)
Total stockholders' equity819,733 826,082 797,893 
Total liabilities and stockholders' equity$7,115,410 $7,236,806 $6,980,100 
Shares outstanding35,047,800 35,108,120 35,106,697 
10

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share amounts)
Quarter EndedSix Months Ended
June 30,
2023		March 31,
2023		June 30,
2022		June 30,
2023		June 30,
2022
Interest Income
Interest and fees on loans$53,623 $50,450 $40,890 $104,073 $81,915 
Taxable interest on investment securities14,774 14,657 7,607 29,431 13,610 
Nontaxable interest on investment securities520 586 893 1,106 1,753 
Interest on interest earning deposits1,154 972 2,342 2,126 3,048 
Total interest income70,071 66,665 51,732 136,736 100,326 
Interest Expense
Deposits8,607 4,528 1,413 13,135 2,837 
Junior subordinated debentures499 482 239 981 433 
Securities sold under agreement to repurchase63 47 32 110 64 
Borrowings5,078 1,766 — 6,844 — 
Total interest expense14,247 6,823 1,684 21,070 3,334 
Net interest income55,824 59,842 50,048 115,666 96,992 
Provision for (reversal of) credit losses1,909 1,825 (1,204)3,734 (4,781)
Net interest income after provision for (reversal of) credit losses53,915 58,017 51,252 111,932 101,773 
Noninterest Income
Service charges and other fees2,682 2,624 2,577 5,306 5,051 
Card revenue2,123 2,000 2,146 4,123 4,409 
Loss on sale of investment securities, net— (286)— (286)— 
Gain on sale of loans, net101 49 219 150 460 
Interest rate swap fees115 53 26 168 305 
Bank owned life insurance income837 709 764 1,546 2,459 
Gain on sale of other assets, net— 2 — 2 204 
Other income1,423 3,107 1,284 4,530 2,666 
Total noninterest income7,281 8,258 7,016 15,539 15,554 
Noninterest Expense
Compensation and employee benefits24,781 25,536 21,778 50,317 43,030 
Occupancy and equipment4,666 4,892 4,171 9,558 8,502 
Data processing4,500 4,342 4,185 8,842 8,246 
Marketing441 402 344 843 610 
Professional services751 628 529 1,379 1,228 
State/municipal business and use taxes1,054 1,008 867 2,062 1,663 
Federal deposit insurance premium797 850 425 1,647 1,025 
Amortization of intangible assets623 623 704 1,246 1,408 
Other expense3,712 3,324 2,704 7,036 5,715 
Total noninterest expense41,325 41,605 35,707 82,930 71,427 
Income before income taxes19,871 24,670 22,561 44,541 45,900 
Income tax expense3,025 4,213 3,977 7,238 7,559 
Net income$16,846 $20,457 $18,584 $37,303 $38,341 
Basic earnings per share$0.48 $0.58 $0.53 $1.06 $1.09 
Diluted earnings per share$0.48 $0.58 $0.52 $1.06 $1.08 
Dividends declared per share$0.22 $0.22 $0.21 $0.44 $0.42 
Average shares outstanding - basic35,058,15535,108,39035,110,33435,083,13335,102,572
Average shares outstanding - diluted35,126,59035,445,34035,409,52435,348,26835,412,722
11


HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands)
Nonperforming Assets and Credit Quality Metrics:
Quarter EndedSix Months Ended
June 30,
2023		March 31,
2023		June 30,
2022		June 30,
2023		June 30,
2022
Allowance for Credit Losses on Loans:
Balance, beginning of period$44,469 $42,986 $40,333 $42,986 $42,361 
Provision for (reversal of) credit losses on loans1,988 1,713 (649)3,701 (3,171)
Charge-offs:
Commercial business— (161)(117)(161)(316)
Residential real estate
— — — — (30)
Consumer(144)(153)(132)(297)(258)
Total charge-offs(144)(314)(249)(458)(604)
Recoveries:
Commercial business38 51 149 89 421 
Residential real estate
— — — — 3 
Real estate construction and land development— — 59 — 67 
Consumer57 33 53 90 619 
Total recoveries95 84 261 179 1,110 
Net (charge-offs) / recoveries(49)(230)12 (279)506 
Balance, end of period$46,408 $44,469 $39,696 $46,408 $39,696 
Net charge-offs (recoveries) on loans to average loans receivable, net(1)
— %0.02 %— %0.01 %(0.03)%
(1) Annualized.
June 30,
2023		March 31,
2023		December 31,
2022
Nonperforming Assets:
Nonaccrual loans:
Commercial business$4,630 $4,815 $5,869 
Real estate construction and land development— — 37 
Total nonaccrual loans4,630 4,815 5,906 
Other real estate owned— — — 
Nonperforming assets$4,630 $4,815 $5,906 
Accruing loans past due 90 days or more2,274 2,344 1,615 
ACL on loans to:
Loans receivable1.09 %1.08 %1.06 %
Nonaccrual loans1,002.33 %923.55 %727.84 %
Nonperforming loans to loans receivable0.11 %0.12 %0.15 %
Nonperforming assets to total assets0.07 %0.07 %0.08 %



12

HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands)
Average Balances, Yields, and Rates Paid:
Six Months Ended
June 30, 2023June 30, 2022
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance		Interest
Earned/
Paid
Average
Yield/
Rate (1)
Interest Earning Assets:
Loans receivable, net (2) (3)
$4,092,769 $104,073 5.13 %$3,792,792 $81,915 4.36 %
Taxable securities1,998,268 29,431 2.97 1,361,437 13,610 2.02 
Nontaxable securities (3)
77,317 1,106 2.88 141,894 1,753 2.49 
Interest earning deposits87,086 2,126 4.92 1,357,420 3,048 0.45 
Total interest earning assets6,255,440 136,736 4.41 %6,653,543 100,326 3.04 %
Noninterest earning assets847,195 756,523 
Total assets$7,102,635 $7,410,066 
Interest Bearing Liabilities:
Certificates of deposit$386,026 $3,707 1.94 %$329,100 $662 0.41 %
Savings accounts576,046 299 0.10 649,562 175 0.05 
Interest bearing demand and money market accounts2,805,645 9,129 0.66 3,066,849 2,000 0.13 
Total interest bearing deposits3,767,717 13,135 0.70 4,045,511 2,837 0.14 
Junior subordinated debentures21,539 981 9.18 21,250 433 4.11 
Securities sold under agreement to repurchase41,469 110 0.53 49,140 64 0.26 
Borrowings282,502 6,844 4.89 %— — — %
Total interest bearing liabilities4,113,227 21,070 1.03 %4,115,901 3,334 0.16 %
Noninterest demand deposits1,984,200 2,354,571 
Other noninterest bearing liabilities186,553 111,167 
Stockholders’ equity818,655 828,427 
Total liabilities and stockholders’ equity$7,102,635 $7,410,066 
Net interest income and spread$115,666 3.38 %$96,992 2.88 %
Net interest margin3.73 %2.94 %
(1)Average balances are calculated using daily balances.
(2)Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $1.5 million and $5.8 million for the years ended June 30, 2023 and 2022, respectively.
(3)Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
13

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands, except per share amounts)
 Quarter Ended
 June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022		June 30,
2022
Earnings:    
Net interest income$55,824 $59,842 $63,107 $59,286 $50,048 
Provision for (reversal of) credit losses1,909 1,825 1,410 1,945 (1,204)
Noninterest income7,281 8,258 6,584 7,453 7,016 
Noninterest expense41,325 41,605 40,392 39,147 35,707 
Net income16,846 20,457 22,544 20,990 18,584 
Pre-tax, pre-provision net income (3)
21,780 26,495 29,299 27,592 21,357 
Basic earnings per share$0.48 $0.58 $0.64 $0.60 $0.53 
Diluted earnings per share$0.48 $0.58 $0.64 $0.59 $0.52 
Average Balances:  
Loans receivable, net (1)
$4,145,556 $4,039,395 $3,963,042 $3,859,839 $3,812,045 
Total investment securities2,061,100 2,090,232 2,106,608 2,001,922 1,587,757 
Total interest earning assets6,297,410 6,213,003 6,292,188 6,592,361 6,612,958 
Total assets7,142,865 7,061,959 7,100,844 7,367,736 7,385,616 
Total interest bearing deposits3,755,005 3,780,570 3,878,325 4,017,490 4,041,706 
Total noninterest demand deposits1,900,640 2,068,688 2,239,806 2,356,688 2,349,746 
Stockholders' equity824,742 812,500 780,401 811,052 810,961 
Financial Ratios:  
Return on average assets (2)
0.95 %1.17 %1.26 %1.13 %1.01 %
Pre-tax, pre-provision return on average assets (2)(3)
1.22 1.52 1.64 1.49 1.16 
Return on average common equity (2)
8.19 10.21 11.46 10.27 9.19 
Return on average tangible common equity (2) (3)
12.04 15.05 17.21 15.20 13.68 
Efficiency ratio65.5 61.1 58.0 58.7 62.6 
Noninterest expense to average total assets (2)
2.32 2.39 2.26 2.11 1.94 
Net interest spread (2)
3.11 3.66 3.87 3.50 2.98 
Net interest margin (2)
3.56 3.91 3.98 3.57 3.04 
(1) Average loan receivable, net includes loans held for sale.
(2) Annualized.
(3) See Non-GAAP Financial Measures section herein.













14

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands, except per share amounts)
 As of or for the Quarter Ended
 June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022		June 30,
2022
Select Balance Sheet:   
Total assets$7,115,410 $7,236,806 $6,980,100 $7,200,312 $7,316,467 
Loans receivable, net4,204,936 4,083,003 4,007,872 3,959,206 3,834,368 
Total investment securities2,030,826 2,078,235 2,097,839 2,129,461 1,803,241 
Deposits5,595,543 5,789,022 5,924,840 6,237,735 6,330,190 
Noninterest demand deposits1,857,492 1,982,909 2,099,464 2,308,583 2,325,139 
Stockholders' equity819,733 826,082 797,893 776,702 805,366 
Financial Measures: 
Book value per share$23.39 $23.53 $22.73 $22.13 $22.94 
Tangible book value per share (1)
16.34 16.48 15.66 15.04 15.83 
Stockholders' equity to total assets11.5 %11.4 %11.4 %10.8 %11.0 %
Tangible common equity to tangible assets (1)
8.3 8.3 8.2 7.6 7.9 
Loans to deposits ratio76.0 71.3 68.4 64.1 61.2 
Regulatory Capital Ratios:
Common equity tier 1 capital ratio(2)
12.8 %12.9 %12.8 %12.8 %13.2 %
Leverage ratio(2)
9.9 9.9 9.7 9.2 8.9 
Tier 1 capital ratio(2)
13.2 13.3 13.2 13.3 13.6 
Total capital ratio(2)
14.1 14.1 14.0 14.0 14.4 
Credit Quality Metrics: 
ACL on loans to:
Loans receivable1.09 %1.08 %1.06 %1.05 %1.02 %
Nonperforming loans1,002.3 923.6 727.8 675.2 379.0 
Nonperforming loans to loans receivable0.11 0.12 0.15 0.16 0.27 
Nonperforming assets to total assets0.07 0.07 0.08 0.09 0.14 
Net charge-offs (recoveries) on loans to average loans receivable, net(3)
— 0.02 (0.02)(0.05)— 
Criticized Loans by Credit Quality Rating:
Special mention$84,623 $96,832 $69,449 $84,439 $72,062 
Substandard58,653 48,824 65,765 66,376 94,419 
Other Metrics:
Number of banking offices51 51 50 50 49 
Deposits per branch$109,717 $113,510 $118,497 $124,755 $129,188 
Average number of full-time equivalent employees811 808 806 790 765 
Average assets per full-time equivalent employee8,807 8,740 8,810 9,326 9,654 
(1) See Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.
(3) Annualized.
15

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollar amounts in thousands, except per share amounts)
This earnings release contains certain financial measures not presented in accordance with Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the GAAP and non-GAAP financial measures are presented below.
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company’s capital levels.
June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022		June 30,
2022
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)$819,733 $826,082 $797,893 $776,702 $805,366 
Exclude intangible assets(246,920)(247,543)(248,166)(248,837)(249,508)
Tangible common equity (non-GAAP)$572,813 $578,539 $549,727 $527,865 $555,858 
Total assets (GAAP)$7,115,410 $7,236,806 $6,980,100 $7,200,312 $7,316,467 
Exclude intangible assets(246,920)(247,543)(248,166)(248,837)(249,508)
Tangible assets (non-GAAP)$6,868,490 $6,989,263 $6,731,934 $6,951,475 $7,066,959 
Stockholders' equity to total assets (GAAP)11.5 %11.4 %11.4 %10.8 %11.0 %
Tangible common equity to tangible assets (non-GAAP)
8.3 %8.3 %8.2 %7.6 %7.9 %
Shares outstanding35,047,800 35,108,120 35,106,697 35,104,248 35,103,929 
Book value per share (GAAP)$23.39 $23.53 $22.73 $22.13 $22.94 
Tangible book value per share (non-GAAP)$16.34 $16.48 $15.66 $15.04 $15.83 























16

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollar amounts in thousands, except per share amounts)
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company’s ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated.
Quarter Ended
June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022		June 30,
2022
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)$16,846 $20,457 $22,544 $20,990 $18,584 
Add amortization of intangible assets623 623 671 671 704 
Exclude tax effect of adjustment(131)(131)(141)(141)(148)
Tangible net income (non-GAAP)$17,338 $20,949 $23,074 $21,520 $19,140 
Average stockholders' equity (GAAP)$824,742 $812,500 $780,401 $811,052 $810,961 
Exclude average intangible assets(247,278)(247,922)(248,560)(249,245)(249,890)
Average tangible common stockholders' equity (non-GAAP)$577,464 $564,578 $531,841 $561,807 $561,071 
Return on average common equity, annualized (GAAP)8.19 %10.21 %11.46 %10.27 %9.19 %
Return on average tangible common equity, annualized (non-GAAP)12.04 %15.05 %17.21 %15.20 %13.68 %
The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions.
Quarter Ended
June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022		June 30,
2022
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized:
Net income (GAAP)$16,846 $20,457 $22,544 $20,990 $18,584 
Add income tax expense3,025 4,213 5,345 4,657 3,977 
Add/(subtract) provision for (reversal of) credit losses1,909 1,825 1,410 1,945 (1,204)
Pre-tax, pre-provision income (non-GAAP)$21,780 $26,495 $29,299 $27,592 $21,357 
Average total assets (GAAP)$7,142,865 $7,061,959 $7,100,844 $7,367,736 $7,385,616 
Return on average assets, annualized (GAAP)0.95 %1.17 %1.26 %1.13 %1.01 %
Pre-tax, pre-provision return on average assets (non-GAAP)1.22 %1.52 %1.64 %1.49 %1.16 %

17
INVESTOR PRESENTATION Q2 2023

 
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” These statements relate to our financial condition, results of operations, beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance or business. Accordingly, these statements involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual strategies, actions or results to differ materially from those expressed in them, and are not guarantees of timing, future results or other events or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions or results, based on management’s current expectations, assumptions and estimates on the date hereof, and there can be no assurance that actual strategies, actions or results will not differ materially from expectations, readers are cautioned not to place undue reliance on such statements. Factors that may cause such a difference include, but are not limited to: • potential adverse impacts to economic conditions or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as supply chain disruptions; • higher inflation and the current and future monetary policies of the Federal Reserve in response thereto; • the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; • legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; • credit and interest rate risks associated with the Company’s businesses, customers, borrowings, repayment, investment, and deposit practices; • fluctuations in deposits; • liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; and • the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business. Further, certain risks and important factors that could affect the Company’s future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2022 and other reports filed by the Company with the Securities and Exchange Commission, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward- looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise. Non-GAAP Financial Information The Company reports its results in accordance with United States generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures used in managing the business may provide meaningful information about underlying trends in its business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. Slides containing a discussion and reconciliation of non-GAAP financial measures are contained at the end of this presentation. All dollars throughout the entire presentation are in millions unless otherwise noted, except per share amounts. FORWARD LOOKING STATEMENTS

 
COMPANY OVERVIEW

 
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $18.36 Market capitalization $643.7 million Institutional ownership 79.5% Headquarters Olympia, WA # of branches 51 Year established 1927 Q2 2023 Financial Highlights Assets $7.12 billion Deposits $5.60 billion Loans receivable $4.25 billion Net income (GAAP) $16.8 million Pre-tax, pre-provision income (non-GAAP) $21.8 million Net interest margin 3.56% ROAE (GAAP) 8.19% ROATCE (non-GAAP) 12.04% Efficiency ratio 65.5% Leverage ratio 9.9% Total capital ratio 14.1% – Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map. – Market information as of July 18, 2023. – Refer to Appendix for calculation of non-GAAP financial measure. – Return on average equity ("ROAE"). – Return on average tangible common equity ("ROATCE"). Metropolitan Statistical Areas Seattle-Tacoma-Bellevue, WA Portland-Vancouver-Hillsboro, OR-WA Eugene-Springfield, OR Boise–Nampa, Idaho Heritage Branch

 
5 COMPANY STRATEGY Allocate capital to organically grow our core banking business Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets as well as other key markets in and adjacent to our current footprint includes our recent branch openings in Eugene, Oregon and Boise, Idaho Ÿ Disciplined approach to concentration risk and active portfolio management Improve operational efficiencies and rationalize branch network Ÿ Focused on achieving increased efficiencies with operational scale, internal focus on improving processes and technology solutions Ÿ Closed/Consolidated 35 branches since the beginning of 2010, including 12 branches in 2021 Generate stable profitability and risk adjusted returns Ÿ 0.95% return on average assets and 8.19% return on average equity in Q2 2023, annualized Ÿ Five-year growth in tangible book value (non-GAAP) of $3.52, or 27.5%, to $16.34 at June 30, 2023 from $12.66 at June 30, 2018 Active and disciplined in M&A Ÿ Be the "acquirer of choice" in the Pacific Northwest Ÿ Five acquisitions in Washington and Oregon since 2013 Ÿ Target Metrics = IRR of >15% with earnbacks < 3 years Maintain conservative underwriting standards and actively manage the loan portfolio Ÿ Long track record of strong underwriting with conservative risk profile Ÿ Disciplined approach to concentration risk Ÿ Nonaccrual loans to loans receivable decreased 8.3% to 0.11% year to date from 0.15% at December 31, 2022 Focus on core deposits is key to franchise value over the long term Ÿ 33.2% noninterest demand deposits to total deposits Ÿ Noninterest demand deposit CAGR of 7.1% since 2018 Ÿ 0.61% cost of total deposits; top 25% performance among US publicly traded banks in Q1 2023 Proactive capital management Ÿ History of increasing regular dividends and utilizing special dividends to manage capital Ÿ Strong capital ratios: Leverage ratio = 9.9%; Total capital ratio = 14.1% – Refer to Appendix for calculation of non-GAAP financial measure. – Comparable cost of total deposits information provided by S&P Global Market Intelligence for the first quarter of 2023 and includes banks nationwide with shares on NASDAQ or NYSE and total assets less than $100 billion; excluding pending merger targets. – Current quarter capital ratios are estimates pending completion and filing of the Company's regulatory reports.

 
6 TECHNOLOGY STRATEGY Objective: Invest in technologies that enable Community Banking @ Scale HeritageONE Technology convergence & omni- channel experiences Ÿ Cutting-edge, proprietary ecosystem providing Heritage the ability to develop custom business applications and systems integrations Ÿ Results in opportunity to integrate processes and technologies to create highly converged, omni-channel customer experiences Ÿ Designed to minimize the cost of internal solution development and accelerate the Bank’s ability to integrate with best of breed vendor solutions Ÿ Investment in JAM FINTOP Blockchain fund, providing access to early-stage opportunities across the spectrum of Fintech innovation to partner and extend the capabilities of the HeritageONE ecosystem 2022-2024 Roadmap Integration and process efficiency Ÿ Continued investment in HeritageONE based solutions, expanding the capabilities of existing tools and adding several new tools to drive efficiency and unified customer- experiences Ÿ Enhance digital account opening capabilities in partnership with Q2; unified call, chat and self-service IVR solution in partnership with Cisco Ÿ Customize online banking and call center platforms to leverage data to drive personalized and omni-channel experiences Key Outcomes Community Banking @ Scale Ÿ Heritage Bank positioned to be a technology leader among Community Banks Ÿ Next generation front & back office integration delivering efficiency, consistency and scalability Ÿ Bankers equipped with better sales and service tools to meet growth & profitability objectives Ÿ Vastly improved customer experience for on-boarding & managing complex banking relationships

 
7 HeritageONE Proprietary technology ecosystem for converging product and service solutions to enable Community Banking @ Scale TECHNOLOGY INNOVATION Build Our proprietary HeritageONE platform provides an API-based framework and set of tools for selective in-house development of applications and integrations to fill the gap in available solutions that create efficient, scalable, and well orchestrated business processes for Commercial Community Banks. HeritageONE business application development is focused on opportunities to create differentiated and value-added service experiences for our core customers: Commercial Loans 360 (CL360) • Streamlines Commercial Lending processes • Single platform for all credit actions Heritage 360 (H360) • “Single pane of glass” for relationship mgmt. • Keeps service and decisions close to the customer • Automates immediate service needs • 99% reduction in time to fill some service requests Treasury Management 360 (TM360) • Single platform for onboarding all TM services • Automates setup tasks • Customer gets immediate access to key services Partner Investment in the HeritageONE ecosystem frees us from sole dependency on our core provider, enabling the bank to pursue relationships with other third-party innovators. This in turn will allow us to bring to market new and creative solutions that ensure that our customers have access to the best options for when, where and how they want to bank with Heritage. Integrate Leveraging our proprietary HeritageONE middleware capabilities to create API-level integrations to maximize the value and effectiveness of in-house and third-party solutions and enable true omni-channel customer experiences.

 
8 ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") PRACTICES We are committed to environmental and sustainability efforts, our human capital, our customers and strengthening the communities and markets in which we operate. Environment and Sustainability Ÿ Have a Green Team Committee focused on sustainability. Ÿ Continually reducing our carbon footprint through branch consolidations and focus on recycling. Ÿ Created an EcoChallenge whereby our employees completed over 3,000 environmentally conscious actions such as saving water and CO2 and diverting plastic from our landfills. Ÿ Invested in solar tax credits in 2022 for a solar photovoltaic project with the capacity of 3 megawatts that produces clean energy, reduces greenhouse gas emissions, reduces harmful pollutant emissions, and creates jobs. Social Responsibility and Human Capital Ÿ Have a DEI ("Diversity, Equity, and Inclusion") Plan, a DEI Statement, a DEI Council and a DEI Officer who has been certified by the National Diversity Council. Ÿ DEI training is provided to management and employees. Ÿ Through the Heritage Volunteers Program, employees are paid eight hours annually for volunteer hours served. In 2022, Heritage employees volunteered 6,484 hours. Ÿ Donated $1.0 million YTD 2023 and $1.4 million in 2022, through our Heritage Helps community investment and giving program, focused on driving positive impact in the areas of: education and youth development; health and human services; business and economic development; environmental stewardship; and social equity. Ÿ Financed more than $70 million YTD 2023 and $96 million in 2022 of affordable housing projects. Ÿ Invested $11 million YTD 2023 and $82 million 2022 in Low-Income Housing Tax Credit investments in 2022 to support low income housing. Ÿ Honored as one of the Washington's Best Workplaces by the Puget Sound Business Journal and Best Places to Work in Oregon and Southwest Washington by the Portland Business Journal Ÿ Participating in the State Small Business Credit Initiative (“SSBCI”) through the Department of Commerce. The program will enhance finance opportunities for those in need. Details of the program will be announced later in 2023. Governance Ÿ Supervised by an engaged Board who actively monitor the policies and business strategies of the Company and are committed to the interests of the Company, its shareholders, employees and communities, including environmental, social, and governance practices. Ÿ Added one director with financial expertise in 2023 and added two directors with technology industry experience in 2022. Ÿ Utilizes the Sustainability Accounting Standards Board Commercial Bank framework and industry guidance published by respected national and international organizations to identify risks and develop our ESG risk framework. Ÿ Maintain effective governance practices including Corporate Governance Guidelines, Committee Charters, Stock Ownership Guidelines, a Code of Ethics Policy and a Whistleblower Policy.

 
9 4.0% 16.2% 3.9% 12.9% $88,444 2.1% 13.4% $73,503 Seattle MSA Portland MSA USA 2023-2028 Proj, population growth 2023-2028 Proj. median household income growth Median household income $106,526 $88,444 $73,503 STRONG AND DIVERSE ECONOMIC LANDSCAPE Market Highlights Major Employers in the Pacific Northwest Market Demographics – Economic data obtained from www.bls.gov, www.bea.gov and S&P Global Market Intelligence. Unemployment data reflects the BLS's latest monthly Economic New Release - Employment & Unemployment. MSA Tie-out of websites used: https://www.bls.gov/web/metro/laulrgma.htm https://www.bls.gov/web/laus/laumstcm.htm https://data.bls.gov/timeseries/LNS14000000 Seattle MSA Portland MSA 3.3% 3.0% Unemployment rate in May 2023 (compared to 4.1% for Washington state and 3.7% for USA) Unemployment rate in May 2023 (compared to 3.7% for Oregon state and 3.7% for USA) 15.9% 15.2% 2023-2028 proj. growth in household income for Washington state 2023-2028 proj. growth in household income for Oregon state

 
10 MAJOR MSA FUNDS UNDER MANAGEMENT Seattle MSA Funds Under Management = Loans + Deposits $2,941 $3,845 $4,020 $4,586 $5,212 $4,877 $4,715 $4,695 $1,415 $1,850 $1,909 $1,936 $1,981 $2,024 $2,069 $2,121 $1,526 $1,995 $2,111 $2,650 $3,231 $2,853 $2,646 $2,574 Total loans Deposits 2017 2018 2019 2020 2021 2022 Q1 2023 Q2 2023 – Prior period information includes branches that were closed or consolidated prior to June 30, 2023. – Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium. Oregon and Portland MSA Funds Under Management = Loans + Deposits $112 $856 $973 $1,166 $1,222 $1,388 $1,426 $1,428 $379 $475 $490 $499 $664 $652 $680 $477 $498 $676 $723 $724 $774 $748 Total loans Deposits 2017 2018 2019 2020 2021 2022 Q1 2023 Q2 2023

 
11 POTENTIAL GROWTH OPPORTUNITIES – Map obtained from S&P Global Market Intelligence. – Certain locations of bank headquarters overlap on the map. – Financial information as of the most recent quarter publicly available. • Long-term goal to build a PNW regional commercial community bank; potential opportunities for M&A and production team lift-outs in OR and ID in addition to WA. • HFWA positioned to be the acquiror of choice in the Pacific Northwest. • Significant number of banks remaining in HFWA footprint; further consolidation is expected. – 10 banks between $200 million and $500 million in assets – 19 banks between $500 million and $1.0 billion in assets – 16 banks between $1.0 billion and $3.5 billion in assets • Financial parameters include 15% IRR and earnback of < 3 years. Bank headquarters

 
12 Completed 2 FDIC deals Pierce Commercial Bank $211MM in assets Cowlitz Bank $345MM in assets Acquired Puget Sound Bancorp $639MM in assets Premier Commercial Bancorp $440MM in assets $1,015 $812 $1,369 $1,346 $1,340 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $6,980 $7,237 $7,115 $556 $319 $1,747 $1,079 $12.21 $12.99 $13.10 $13.16 $13.31 $15.02 $15.68 $16.08 $20.63 $22.10 $22.85 $24.34 $22.73 $23.53 $23.39 $11.00 $12.03 $12.16 $12.23 $11.40 $10.73 $11.41 $11.86 $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $16.48 $16.34 Organic Assets Acquired Assets Book value per share (GAAP) Tangible book value per share (non-GAAP) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1 2023 Q2 2023 HISTORICAL GROWTH ORGANIC AND ACQUISITIVE Merged with Washington Banking Company $1.7B in assets Acquired Valley Community Bancshares $254MM in assets Northwest Commercial Bank $65MM in assets – Refer to Appendix for calculation of non-GAAP financial measures. $16.88

 
13 GROWTH STRATEGY YEAR ACTIVITY 2013 • Acquired Valley Community Bancshares - $254MM in assets • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets 2015 • Added a commercial banking team in Seattle, Washington • Formed our Capital Markets Group as result of the added expertise 2017 • Added a commercial banking team in Portland, Oregon • Expanded expertise in non-profit lending and added a commercial position focused on deposit production 2018 • Acquired Puget Sound Bancorp - $639MM in assets • Acquired Premier Commercial Bancorp - $440MM in assets 2019 • Added a commercial banking team in the greater Portland, Oregon area • Expanded expertise in the dental and healthcare fields 2022 • Added new commercial banking team in Vancouver, Washington • Added new commercial banking team in Portland, Oregon • Expanded into a new market with addition of commercial banking team and full service branch in Eugene, Oregon 2023 • Expanded into a new market with addition of commercial banking team and full service branch in Boise, Idaho (branch opened January 10, 2023) Bank Acquisitions and Team Additions Over Past 10 Years Bank Acquisition Team Addition

 
14 DEPOSIT MARKET SHARE Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2022 Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share 1 Bank of America Corporation (NC) $32,880 20.36% 1 Bank of America Corporation (NC) $34,290 19.44% 1 Bank of America Corporation (NC) $64,497 18.59% 2 U.S. Bancorp (MN) 18,200 11.27% 2 U.S. Bancorp (MN) 24,912 14.12% 2 U.S. Bancorp (MN) 47,190 13.60% 3 Washington Mutual Inc. (WA) 18,044 11.17% 3 Wells Fargo & Co. (CA) 22,985 13.03% 3 JPMorgan Chase & Co. (NY) 46,617 13.44% 4 Wells Fargo & Co. (CA) 13,983 8.66% 4 JPMorgan Chase & Co. (NY) 15,638 8.87% 4 Wells Fargo & Company (CA) 40,551 11.69% 5 KeyCorp (OH) 11,282 6.99% 5 KeyCorp (OH) 11,806 6.69% 5 KeyCorp (OH) 18,670 5.38% 6 Sterling Financial Corp. (WA) 6,315 3.91% 6 Washington Federal Inc. (WA) 6,217 3.52% 6 Umpqua Holdings Corporation (OR) 17,658 5.09% 7 Washington Federal Inc. (WA) 4,697 2.91% 7 Columbia Banking System Inc. (WA) 5,840 3.31% 7 Columbia Banking System, Inc. (WA) 15,407 4.44% 8 Umpqua Holdings Corp. (OR) 3,683 2.28% 8 Umpqua Holdings Corp. (OR) 5,499 3.12% 8 Banner Corporation (WA) 10,879 3.14% 9 Banner Corp. (WA) 3,512 2.17% 9 Sterling Financial Corp. (WA) 5,203 2.95% 9 Washington Federal, Inc. (WA) 10,190 2.94% 10 Frontier Financial Corp. (WA) 3,304 2.05% 10 Mitsubishi UFJ Financial Group Inc. 3,475 1.97% 10 W.T.B. Financial Corporation (WA) 8,045 2.32% 11 Columbia Banking System Inc. (WA) 2,401 1.49% 11 Banner Corp. (WA) 3,255 1.85% 11 Heritage Financial Corporation (WA) 6,338 1.83% 12 W.T.B. Financial Corp. (WA) 2,356 1.46% 12 W.T.B. Financial Corp. (WA) 3,180 1.80% 12 HomeStreet, Inc. (WA) 4,490 1.29% 13 West Coast Bancorp (OR) 2,082 1.29% 13 HomeStreet Inc. (WA) 1,613 0.91% 13 First Interstate BancSystem, Inc. (MT) 3,566 1.03% 14 HomeStreet Inc. (WA) 1,268 0.79% 14 SKBHC Holdings LLC (WA) 1,551 0.88% 14 BNP Paribas SA 2,714 0.78% 15 Cascade Bancorp (OR) 1,142 0.71% 15 Washington Banking Co. (WA) 1,411 0.80% 15 First Republic Bank (CA) 2,708 0.72% 16 AmericanWest Bancorp. (WA) 1,100 0.68% 16 Yakima Federal S&L Assoc. (WA) 1,402 0.79% 16 Coastal Financial Corporation (WA) 2,700 0.72% 17 Horizon Financial Corp. (WA) 1,097 0.68% 17 BNP Paribas SA 1,315 0.75% 17 Peoples Bancorp (WA) 2,500 0.59% 18 Yakima Federal S&L Assoc. (WA) 1,094 0.68% 18 Heritage Financial Corp. (WA) 1,227 0.70% 18 Mitsubishi UFJ Financial Group, Inc. 2,497 0.57% 19 BNP Paribas SA 1,002 0.62% 19 Peoples Bancorp (WA) 1,119 0.63% 19 FS Bancorp, Inc. (WA) 2,033 0.78% 20 Cascade Financial Corp. (WA) 993 0.62% 20 Cashmere Valley Bank (WA) 1,094 0.62% 20 Cashmere Valley Bank (WA) 1,964 0.29% 21 City Bank (WA) 955 0.59% 21 Pacific Continental Corp. (OR) 1,075 0.61% 21 East West Bancorp, Inc. (CA) 1,692 0.78% 22 Columbia Bancorp (OR) 940 0.58% 22 Opus Bank (CA) 968 0.55% 22 Timberland Bancorp, Inc. (WA) 1,665 0.49% 23 Venture Financial Group Inc. (WA) 917 0.57% 23 East West Bancorp Inc. (CA) 925 0.52% 23 First Northwest Bancorp (WA) 1,598 0.44% 24 First Financial Northwest Inc. (WA) 868 0.54% 24 Olympic Bancorp Inc. (WA) 807 0.46% 24 Zions Bancorp. NA (UT) 1,540 0.48% 25 Peoples Bancorp (WA) 846 0.52% 25 HSBC Holdings PLC 802 0.45% 25 Olympic Bancorp, Inc. (WA) 1,522 0.43% 26 Cashmere Valley Financial Corp. (WA) 842 0.52% 26 Cascade Bancorp (OR) 800 0.45% 26 Riverview Bancorp, Inc. (WA) 1,507 0.46% 27 Heritage Financial Corp. (WA) 802 0.50% 27 Zions Bancorp. NA (UT) 774 0.44% 27 Yakima Federal S&L Assoc. (WA) 1,498 0.44% 28 Liberty Financial Group Inc. (OR) 778 0.48% 28 Skagit Bancorp Inc. (WA) 667 0.38% 28 Pacific Financial Corporation (WA) 1,204 0.43% 29 Washington Banking Co. (WA) 734 0.45% 29 Riverview Bancorp Inc. (WA) 660 0.37% 29 First Financial Northwest, Inc. (WA) 1,194 0.34% 30 First Indep. Investment Group Inc. (WA) 684 0.42% 30 First Financial Northwest Inc. (WA) 642 0.36% 30 Glacier Bancorp, Inc. (MT) 1,049 0.35% 31 Pacific Continental Corp. (OR) 677 0.42% 31 First Fed. S&L Assoc. of Port Angeles (WA) 598 0.34% 31 HSBC Holdings plc 1,020 0.25% 32 PremierWest Bancorp (OR) 664 0.41% 32 Timberland Bancorp Inc. (WA) 596 0.34% 32 Citizens Bancorp (OR) 949 0.30% 33 Riverview Bancorp Inc. (WA) 630 0.39% 33 Pacific Financial Corp. (WA) 591 0.34% 33 Pacific Premier Bancorp, Inc. (CA) 867 0.27% 34 Olympic Bancorp Inc. (WA) 627 0.39% 34 Baker Boyer Bancorp (WA) 468 0.27% 34 Summit Bank Group, Inc. (OR) 861 0.23% 35 Zions Bancorp. NA (UT) 572 0.35% 35 Olympia Federal S&L Association (WA) 465 0.26% 35 Cathay General Bancorp (CA) 822 0.25% 36 Whitman Bancorp. Inc. (WA) 528 0.33% 36 Home Federal Bancorp Inc. (ID) 451 0.26% 36 Sound Financial Bancorp, Inc. (WA) 790 0.22% 37 Washington First Financial Group Inc. (WA) 515 0.32% 37 First Citizens BancShares Inc. (NC) 416 0.24% 37 First Citizens BancShares, Inc. (NC) 772 0.22% 38 First Fed. S&L Assoc. of Port Angeles (WA) 496 0.31% 38 Citizens Bancorp (OR) 404 0.23% 38 BEO Bancorp (OR) 771 0.21% 39 Skagit Bancorp Inc. (WA) 486 0.30% 39 Coastal Financial Corp. (WA) 349 0.20% 39 PBCO Financial Corporation (OR) 751 0.20% 40 Timberland Bancorp Inc. (WA) 480 0.30% 40 Evergreen Federal Bank (OR) 336 0.19% 40 Baker Boyer Bancorp (WA) 728 0.22% Total For Institutions In Market $161,492 Total For Institutions In Market $176,371 Total For Institutions In Market $346,970 Out of 148 Institutions Out of 120 Institutions Out of 84 Institutions – Data obtained from S&P Global Market Intelligence as of June 30 for the year indicated.

 
FINANCIAL UPDATE

 
16 FINANCIAL UPDATE - Q2 2023 • Net income was $16.8 million, or $0.48 per diluted share, for the second quarter of 2023 compared to $20.5 million, or $0.58 per diluted share, for the first quarter of 2023. • Loans receivable increased $123.9 million, or 3.00% in the second quarter of 2023. • Capital remains strong with a leverage ratio of 9.9% and a total capital ratio of 14.1% at June 30, 2023. • The ratio of nonperforming assets to total assets at June 30, 2023 and March 31, 2023 was 0.07%. • Net interest margin was 3.56% for the second quarter of 2023 compared to 3.91% for the first quarter of 2023. • Cost of total deposits was 0.61% for the second quarter of 2023 compared to 0.31% for the first quarter of 2023. • Total deposits decreased $193.5 million or 3.34% in the second quarter of 2023. • Declared a regular cash dividend of $0.22 per share on July 19, 2023.

 
17 Average Loan Balances and Loan Yields $4,336 $4,181 $3,853 $4,093 $3,812 $3,860 $3,963 $4,039 $4,146 4.44% 4.54% 4.52% 5.13% 4.30% 4.51% 4.86% 5.07% 5.19% Average loans Loan yield 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Commercial & industrial 16.7% Owner- occupied CRE 22.6% Non-owner occupied CRE 38.6% Residential real estate 8.8% Construction & land development 9.1% Consumer 4.2% LOAN PORTFOLIO Current Quarter Loan Portfolio Composition Loan Portfolio Repricing Schedule 33.9% 30.6% 26.0% 25.8% 25.3% 20.3% 21.3% 21.7% 21.1% 21.3% 45.8% 48.1% 52.3% 53.1% 53.4% Fixed rate Floating (<3 month repricing) Adjustable (>3 month repricing) 2020 2021 2022 Q1 2023 Q2 2023 – Loan yield calculation incorporates the average balance of loans receivable, net and loans held for sale. – Refer to Appendix for calculation of non-GAAP financial measure.

 
18 LOAN PORTFOLIO COMPOSITION $4,469 $3,816 $4,051 $4,127 $4,251 $733 $622 $692 $685 $708 $857 $931 $937 $949 $959 $1,410 $1,493 $1,587 $1,602 $1,644 $123 $165 $344 $364 $376 $306 $227 $294 $343 $386 $325 $232 $196 $183 $178$715 $146 Commercial & industrial Owner-occupied CRE Non-owner occupied CRE Residential real estate Construction & land development Consumer SBA PPP 2020 2021 2022 Q1 2023 Q2 2023

 
19 New Commitments Originated $43 $29 $21 $15 $23 $61 $47 $66 $23 $27 $283 $277 $329 $228 $212 Consumer Residential Commercial Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 LOAN PRODUCTION – Q2 2022, Q3 2022, Q4 2022 residential commitments originated include $27.3 million, $29.0 million, and $40.5 million of purchased loans, respectively.

 
20 Construction Commitments $486 $488 $686 $745 $781 $306 $227 $294 $343 $386 $180 $261 $392 $402 $395 Outstanding Balance Available Credit 2020 2021 2022 Q1 2023 Q2 2023 25.6% 25.2% 29.8% 30.0% 29.8% 63.0% 46.5% 42.9% 46.0% 49.4% 32.9% 31.4% 31.1% 30.0% 30.1% Utilization Rate - Consumer LOCs Utilization Rate - Construction LOCs Utilization Rate - Commercial and Industrial Loan LOCs 2020 2021 2022 Q1 2023 Q2 2023 LINE OF CREDIT ("LOC") UTILIZATION LOC Utilization Rates

 
21 CHANGES IN LOANS RECEIVABLE $4,127 $134 $(52) $(18) $61 $4,251 Loans receivable at March 31, 2023 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at June 30, 2023 $4,051 $138 $(41) $(33) $13 $4,127 Loans receivable at December 31,2022 Loans originated Prepayments Payoffs Net advances/ payments Loans receivable at March 31, 2023 Change in loans - Q2 2023 Change in loans - Q1 2023

 
22 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 12/31/2022 WARR at 3/31/2023 WARR at 6/30/2023 Real estate, rental and leasing $1,796 4.4 4.4 4.4 Health care and social assistance 327 4.6 4.5 4.5 Accommodation and food services 175 5.4 5.2 5.1 Retail trade 155 4.4 4.5 4.5 Construction 119 4.7 4.7 4.7 Other services (except Public administration) 102 4.6 4.6 4.6 Manufacturing 86 5.0 5.0 5.0 All other industries 553 4.4 4.4 4.4 Total $3,313 4.5 4.5 4.5 CRE Loans only by Collateral Type Collateral Type Amount WARR at 12/31/2022 WARR at 3/31/2023 WARR at 6/30/2023 Office $569 4.3 4.3 4.3 Industrial 412 4.5 4.5 4.4 Retail store / shopping center 295 4.6 4.6 4.6 Multi-family 259 4.3 4.4 4.4 Mixed use property 151 4.5 4.5 4.5 Motel / hotel 141 5.4 5.2 5.1 Single purpose 112 4.5 4.5 4.6 Warehouse 158 4.6 4.6 4.5 Mini-storage 160 4.2 4.2 4.2 Recreational / school 68 4.9 4.9 4.9 Other 279 4.7 4.7 4.7 Total $2,604 4.5 4.5 4.5– Categorized by NAICS code. – WARR = Weighted average risk rating. Office - Owner- occupied CRE 10.9% Office - Non-owner occupied CRE 11.1% Industrial 15.8% Retail store / shopping center 11.3% Multi-family 9.9% Mixed use property 5.8% Motel / hotel 5.4% Single purpose 4.3% Warehouse 6.1% Mini-storage 6.1% Recreational / school 2.6% Other 10.7% Real estate and rental and leasing 54.1% Health care and social assistance 9.9% Accommodation and food services 5.3% Retail trade 4.7% Construction 3.6% Other Services (except Public administration) 3.1% Manufacturing 2.6% All other industries 16.7%

 
23 CRE CONCENTRATIONS Total Commercial Real Estate Loans - As Defined by Regulatory Guidance 248% 255% 257% 259% 268% Total Commercial Real Estate Loans / Total RBC Supervisory Criteria Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 200% 225% 250% 275% 300% Construction, Land Development and Other Land Loans 32% 37% 41% 44% 49% Construction, Land and Land Development / Total RBC Supervisory Criteria Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 0% 25% 50% 75% 100% Interagency Guidance on CRE Concentration Risk Management • Issued in 2012 • Defines "Supervisory Criteria" to calculate notable exposure to specific types of CRE as compared to Total Risk Based Capital (RBC) • Exceeding these limits may subject the bank to further supervisory analysis to assess the nature and risk posed by the concentration • Total Commercial Real Estate Loans excludes owner occupied real estate loans • The Company has consistently been below the Supervisory Criteria *Ratios are for Heritage Bank, not the consolidated company and are based upon regulatory classification of loans for each period presented. Regulatory capital calculations are estimates as of June 30, 2023.

 
24 CRE OFFICE CRE Office Loans - Core vs. Suburban Location Core 5.6% Suburban 94.4% CRE Office Loans by Size (Dollars in Thousands) Size Average Risk Rating Number of Loans Balance Average Balance >$10 Million 3.41 4 $ 67,294 16,823 $5-$10 Million 4.31 16 $ 103,412 6,463 $2-$5 Million 4.37 45 $ 135,743 3,017 <$2 Million 4.54 468 $ 262,734 561 TOTAL 4.32 533 $ 569,183 1,066 Quality of CRE Office Portfolio: • Average loan size of $1.1 million • 86% of loans have recourse to owner • 50% of loans are owner occupied which are considered to have a lower risk profile • 24% of loans for health care and social assistance who are less likely to reduce office space DATA NOT FINALIZED FOR THIS CHART CRE Office Loans by Industry Type 63.2% 24.0% 3.2% 2.9% 2.1% 1.1% 3.5% Real Estate and Rental and Leasing Health Care and Social Assistance Professional, Scientific, and Technical Services Finance and Insurance Other Services (except Public Administration) Accommodation and Food Services All Other MLF v2

 
25 Net charge-offs (recoveries) on loans to average loans, annualized 0.07% 0.01% (0.03)% 0.00% (0.05)% (0.02)% 0.02% 0.00% 2020 2021 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Nonperforming Assets $58 $24 $6 $5 $5 Nonaccrual loans Nonperforming assets to total assets 2020 2021 2022 Q1 2023 Q2 2023 0.88% 0.32% 0.08% 0.07% 0.07% NONPERFORMING ASSETS AND NET CHARGE-OFFS

 
26 CRITICIZED LOANS $291 $183 $135 $146 $143 $58 $24 $100 $89 $60 $44 $54 $132 $71 $69 $97 $85 Substandard - nonaccrual Substandard - accrual Special mention 2020 2021 2022 Q1 2023 Q2 2023 Criticized Loans by Collateral Type Commercial & industrial 29.8% Owner- occupied CRE 29.5% Non-owner occupied CRE 29.2% Residential real estate 0.1% Construction & land development 9.9% Consumer 1.5% Criticized Loans by Loan Segment Motel / hotel 14.6% Office 17.1% Retail store / shopping center 8.1% Mixed use property 5.0% Elder care 5.8% Farms 4.1% Assisted Living 3.9% Restaurant 2.1% Industrial 6.9% Warehouse 2.9% Other CRE 11.1% Non-CRE 18.4% $5$6 $5

 
27 1.57% 1.11% 1.06% 1.08% 1.09% $70,185 $42,361 $42,986 $44,469 $46,408 ACL on loans ($) ACL on loans / Loans (%) 2020 2021 2022 Q1 2023 Q2 2023 ACL on Loans - Q2 2023 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $44,469 $1,831 $90 $114 $(96) $46,408 ACL at March 31, 2023 Change in loan balance Change in collective rate Change in rate and balance Individually evaluated loans ACL at June 30, 2023 Change in ACL on Loans - Q2 2023 *Dollars in thousands

 
28 $5,298 $6,090 $6,322 $5,752 $6,391 $6,374 $6,118 $5,849 $5,656 0.23% 0.10% 0.11% 0.46% 0.09% 0.09% 0.16% 0.31% 0.61% 0.14% 0.15% 0.25% 0.49% 0.92% 0.35% 0.16% 0.17% 0.70% Average deposits Cost of total deposits Cost of int-bearing deposits 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Deposit Composition DEPOSITS Average Deposit Balances and Cost of Total Deposits 35.5% 36.7% 35.5% 34.3% 33.2% 30.6% 30.4% 30.9% 28.9% 28.9% 17.2% 17.5% 17.9% 20.0% 20.4% 9.6% 10.0% 10.5% 10.0% 9.6% 7.1% 5.4% 5.2% 6.8% 7.9% Noninterest demand deposits Interest bearing demand deposits Money market accounts Savings accounts Certificates of deposit 2020 2021 2022 Q1 2023 Q2 2023

 
29 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $774 $260 $1,273 $1,246 $2,043 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 32% 60% 8% Consumer Commercial CDs Insured vs. Uninsured 33% 67% Insured Uninsured Estimated balances as of June 30, 2023 Deposit portfolio as of June 30, 2023: • Majority of deposits are to customers with relationships of $1 million or less • Uninsured deposits at 33% of total deposits • Mix of commercial and consumer accounts

 
30 Investment Balances and Investment Yield $802 $1,278 $2,098 $2,031 $1,803 $2,129 $2,098 $2,078 $2,031 $153 $757 $1,203 $427 $438 2.40% 2.13% 2.48% 2.97% 2.15% 2.63% 2.92% 2.96% 2.98% Portfolio yield New purchases 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 INVESTMENT PORTFOLIO 2.69 4.85 4.93 4.80 5.64 6.76 4.08 2.79 5.28 4.98 4.93 4.90 4.80 3.96 4.09 2.39 2.79 Duration - total portfolio Duration - new purchases only 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Portfolio Duration – No new investments were purchased during Q2 2023.

 
31 $64 $57 $71 $45 $63 $94 $80 $75 $50 $47 $48 $42 $56 $31 $49 $81 $67 $63 $37 $35 $16 $15 $15 $14 $14 $13 $13 $12 $13 $12 Interest Principal Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 INVESTMENT CASHFLOWS Investment cashflows are estimated to be $646 million through 2025 – Cashflow estimates based on third-party bond accounting service Look in IP or email

 
32 INVESTMENT PORTFOLIO - AFS AFS Investments by Type US government and agencies 5.0% Municipal securities 10.2% Residential CMO and MBS 32.2% Commercial CMO and MBS 50.8% Corporate obligations 0.3% Other asset- backed securities 1.5% *Available for sale ("AFS") investment securities balances and percentages are presented at fair value as of June 30, 2023 unless otherwise noted. Strong Credit Quality of Portfolio: • 88.4% in U.S. government and agency securities • Only 0.4% rated less than AA AFS Investments Amortized Cost Net Unrealized Loss Fair Value U.S. government and agency securities $ 69 $ (4) $ 65 Municipal securities 146 (16) 130 Residential CMO and MBS 466 (55) 411 Commercial CMO and MBS 699 (51) 648 Corporate obligations 4 — 4 Other asset-backed securities 19 — 19 Total $ 1,403 $ (126) $ 1,277 AFS Investments Pledged 31.7% 68.3% Pledged Not pledged

 
33 INVESTMENT PORTFOLIO - HTM HTM Investments by Type US government and agencies 18.2% Residential CMO and MBS 39.5% Commercial CMO and MBS 42.3% *Held to maturity ("HTM") investment securities balances and percentages are presented at fair value as of June 30, 2023 unless otherwise noted Strong Credit Quality of Portfolio: • All U.S. government and agency securities Entire HTM Portfolio Pledged For: • Public deposits • FRB Discount Window • FRB Bank Term Funding Program HTM Investments Amortized Cost Net Unrecognized Loss Fair Value U.S. government and agency securities $ 151 $ (30) $ 121 Residential CMO and MBS 280 (17) 263 Commercial CMO and MBS 323 (42) 281 Total $ 754 $ (89) $ 665

 
34 2.94% 0.88% 0.51% (0.02)% (0.33)% (0.25)% 3.73% YTD Q2 2022 Loans Investments Interest earning deposits Deposits Borrowings YTD Q2 2023 3.63% 3.23% 3.35% 3.72% 3.04% 3.57% 3.98% 3.91% 3.56% NIM 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 NET INTEREST MARGIN Change in Net Interest Margin QTD Q1 2023 vs. QTD Q2 2023 Change in Net Interest Margin YTD Q2 2022 vs. YTD Q2 2023 Net Interest Margin3.91% 0.13% (0.03)% 0.01% (0.25)% (0.21)% 3.56% QTD Q1 2023 Loans Investments Interest earning deposits Deposits Borrowings QTD Q2 2023

 
35 Asset Repricing Composition at June 30, 2023 Floating rate (<3 month repricing) Adjustable rate (>3 month repricing) Fixed rate Total Interest earning deposits $ 35 $ — $ — $ 35 Total investment securities, at fair value 97 8 1,837 1,942 Loans receivable 907 1,075 2,270 4,252 Total interest earning assets $ 1,039 $ 1,083 $ 4,107 $ 6,229 % of total interest earning assets 16.7 % 17.4 % 65.9 % Total noninterest earning assets 886 Total assets $ 7,115 % of total assets 14.6 % 15.2 % 57.7 % INTEREST EARNING ASSETS Average Interest Earning Assets Composition 78.3% 65.5% 58.8% 65.4% 57.7% 58.5% 63.0% 65.1% 65.9% 16.0% 15.8% 27.2% 33.2% 24.0% 30.4% 33.5% 33.6% 32.7% 5.7% 18.7% 14.0% 1.4% 18.3% 11.1% 1.3% 1.4% Interest earning deposits Investment securities Loans receivable, net 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 3.5%

 
36 $46.6 $98.0 $81.9 $37.3 $89.3 $91.1 $98.0 $48.3 Net income (GAAP) PTPP income (non-GAAP) 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 $18.6 $21.0 $22.5 $20.5 $16.8 $21.4 $27.6 $29.3 $26.5 $21.8 PROFITABILITY TRENDS ROAE (GAAP) and ROATCE (non-GAAP) Noninterest Expense/Avg. Assets ROAA (GAAP) and PTPP ROAA (non-GAAP) 0.74% 1.38% 1.12% 1.06% 1.01% 1.13% 1.26% 1.17% 0.95% 1.42% 1.28% 1.34% 1.37% 1.16% 1.49% 1.64% 1.52% 1.22% ROAA (GAAP) PTPP ROAA (non-GAAP) 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Net Income (GAAP) and PTPP Income (non- GAAP), in millions 8.98% 17.05% 14.94% 13.52% 13.68% 15.20% 17.21% 15.05% 12.04% 5.78% 11.64% 10.08% 9.19% 9.19% 10.27% 11.46% 10.21% 8.19% ROAE (GAAP) ROATCE (non-GAAP) 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 2.37% 2.09% 2.06% 2.35% 1.94% 2.11% 2.26% 2.39% 2.32% 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 – Refer to Appendix for calculation of non-GAAP financial measures – ROAA - Return on average assets – PTPP - Pre-tax, pre-provision – ROAE - Return on average equity – ROATCE - Return on average tangible common equity

 
37 Total Risk Based Capital 14% 14.8% 14.0% 14.1% 14.1% 10.0% 10.0% 10.0% 10.0% 10.0% 4.0% 4.8% 4.0% 4.1% 4.1% Well-capitalized Excess capital 2020 2021 2022 Q1 2023 Q2 2023 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appendix for calculation of non-GAAP financial measures. – Well-capitalized represents FDIC well-capitalized ratio threshold for banks. The minimum capital ratio requirement for Tier 1 leverage and Total risk based capital is 4.0% and 8.0%, respectively. Tier 1 Leverage Ratio 9.0% 8.7% 9.7% 9.9% 9.9% 5.0% 5.0% 5.0% 5.0% 5.0% 4.0% 3.7% 4.7% 4.9% 4.9% Well-capitalized Excess capital 2020 2021 2022 Q1 2023 Q2 2023 CAPITAL RATIOS Equity Ratios 12.4% 11.5% 11.4% 11.4% 11.5% 8.9% 8.4% 8.2% 8.3% 8.3% Stockholders' equity to total assets (GAAP) Tangible common equity ("TCE") to tangible assets (non-GAAP) 2020 2021 2022 Q1 2023 Q2 2023

 
38 LIQUIDITY POSITION (1) At fair value (2) Includes FHLB borrowing availability of $1.22 billion at June 30, 2023 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.26 billion. Liquidity position as of June 30, 2023: • Sufficient liquidity to cover estimated uninsured deposits of $1.8 billion • Pledged investments to FRB Discount Window and Bank Term Loan Funding Program • Access to brokered deposits of $788 million per internal company policy $2,916 $3,088 $2,752 $1,226 $815 $1,217 $47 $641 $410 $1,324 $1,116 $872 $104 $301 $108 $215 $215 $145 123.0% 152.5% 150.6% FHLB borrowing availability FRB borrowing availability Unencumbered investment securities available for sale Cash and cash equivalents Fed funds lines % of uninsured deposits covered by liquidity sources 4Q 2022 1Q 2023 2Q 2023 Liquidity Sources

 
39 Utilization of Bank Term Funding Program ("BTFP") As of June 30, 2023 Amount1 Rate2 Quarterly NII Impact3 Sources: Draw on Fed Bank Term Funding Program $ 450,000 4.72 % $ (5,295) Pay down FHLB Advances (450,000) 5.15 % 5,778 $ 483 (1) Dollars in thousands (2) Average rate paid during 2Q 2023 (3) Net Interest Income ("NII"). Assumes balances were outstanding for entire quarter Utilization of the Federal Reserve's BTFP Due to the highly favorable terms of the program Heritage has elected to borrow from the program and offset higher cost borrowings. The table below outlines the quarterly impact to net interest income. Features of BTFP in Support of Utilization Ÿ Prepayable at any time without penalty - great given high volatility/uncertainty Ÿ Additional collateral value on securities portfolio with mark to market losses

 
SHAREHOLDER RETURN

 
41 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $18.36 Market capitalization (in millions) $643.7 Dividend yield (regular dividend only) 4.79% Average Daily Volume (3 month) Average daily volume (shares) 230,307 Average daily volume ($000s) $4,228 52-Week High and Low Price 52-week high (November 10, 2022) 34.34 52-week low (May 4, 2023) 14.85 Per Share Tangible book value per share $16.64 EPS - 2023E $1.96 EPS - 2024E $1.93 Number of research analysts 6 Valuation Ratios Price / Tangible book value 110.3% Price / 2023E EPS 9.4x Price / 2024E EPS 9.5x Dividends Per Share Declared $0.66 $0.50 $0.53 $0.72 $0.61 $0.72 $0.84 $0.80 $0.81 $0.84 $0.08 $0.10 $0.11 $0.12 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22$0.08 $0.11 $0.12 $0.13 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22 $0.09 $0.11 $0.12 $0.13 $0.15 $0.19 $0.20 $0.20 $0.21 $0.22 $0.09 $0.11 $0.12 $0.13 $0.17 $0.19 $0.20 $0.21 0.21 $0.16 $0.10 $0.25 $0.10 $0.10 $0.10 Q1 Q2 Q3 Q4 Special dividends 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Diluted Earnings Per Share – Market information as of July 18, 2023. – Dividend information as of July 19, 2023. $1.06 $0.79 $1.25 $1.30 $1.39 $1.49 $1.83 $1.29 $2.73 $2.30 $0.16 $0.32 $0.30 $0.31 $0.27 $0.45 $0.34 $0.70 $0.56 $0.58$0.16 $0.29 $0.30 $0.40 $0.35 $0.43 -$0.17 $0.90 $0.52 $0.48 $0.23 $0.32 $0.37 $0.35 $0.42 $0.48 $0.46 $0.58 $0.59 $0.24 $0.32 $0.33 $0.33 $0.45 $0.47 $0.66 $0.55 $0.64 Q1 Q2 Q3 Q4 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 –

 
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS

 
43 NON-GAAP FINANCIAL MEASURES 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 PTPP Income and PTPP ROAA: Net income (GAAP) $46,570 $98,035 $81,875 $37,303 $18,584 $20,990 $22,544 $20,457 $16,846 Exclude income tax expense 6,610 22,472 17,561 7,238 3,977 4,657 5,345 4,213 3,025 Exclude provision for (reversal of provision for) credit losses 36,106 (29,372) (1,426) 3,734 (1,204) 1,945 1,410 1,825 1,909 PTPP income (non-GAAP) $89,286 $91,135 $98,010 $48,275 $21,357 $27,592 $29,299 $26,495 $21,780 Average total assets $6,293,622 $7,126,250 $7,321,455 $7,102,635 $7,385,616 $7,367,736 $7,100,844 $7,061,959 $7,142,865 ROAA, annualized (GAAP) 0.74 % 1.38 % 1.12 % 1.06 % 1.01 % 1.13 % 1.26 % 1.17 % 0.95 % PTPP ROAA, annualized (non-GAAP) 1.42 % 1.28 % 1.34 % 1.37 % 1.16 % 1.49 % 1.64 % 1.52 % 1.22 % ROATCE: Net income (GAAP) $46,570 $98,035 $81,875 $37,303 $18,584 $20,990 $22,544 $20,457 $16,846 Add amortization of intangible assets 3,525 3,111 2,750 1,246 704 671 671 623 623 Exclude tax effect of adjustment (740) (653) (578) (262) (148) (141) (141) (131) (131) Tangible net income (non-GAAP) $49,355 $100,493 $84,047 $38,287 $19,140 $21,520 $23,074 $20,949 $17,338 Average stockholders' equity (GAAP) $805,580 $842,067 $811,942 $818,655 $810,961 $811,052 $780,401 $812,500 $824,742 Exclude average intangible assets (255,898) (252,540) (249,566) (247,598) (249,890) (249,245) (248,560) (247,922) (247,278) Average tangible common stockholders' equity (non-GAAP) $549,682 $589,527 $562,376 $571,057 $561,071 $561,807 $531,841 $564,578 $577,464 ROAE, annualized (GAAP) 5.78 % 11.64 % 10.08 % 9.19 % 9.19 % 10.27 % 11.46 % 10.21 % 8.19 % ROATCE, annualized (non-GAAP) 8.98 % 17.05 % 14.94 % 13.52 % 13.68 % 15.20 % 17.21 % 15.05 % 12.04 % – Dollars in thousands – ROAA - Return on average assets – PTPP - Pre-tax, pre-provision – ROATCE - Return on average tangible common equity

 
44 2009 2010 2011 2012 2013 2014 2015 2016 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $158,498 $202,279 $202,520 $198,938 $215,762 $454,506 $469,970 $481,763 Exclude intangible assets (13,358) (14,965) (14,525) (14,098) (30,980) (129,918) (127,818) (126,403) Exclude preferred stock (23,487) — — — — — — — Tangible common equity (non-GAAP) $121,653 $187,314 $187,995 $184,840 $184,782 $324,588 $342,152 $355,360 Shares outstanding 11,057,972 15,568,471 15,456,297 15,117,980 16,210,747 30,259,838 29,975,439 29,954,931 Book value per share (GAAP) $12.21 $12.99 $13.10 $13.16 $13.31 $15.02 $15.68 $16.08 Tangible book value per share (non-GAAP) $11.00 $12.03 $12.16 $12.23 $11.40 $10.73 $11.41 $11.86 Moved to 2nd slide 2017 2018 2019 2020 2021 2022 2023 Q1 Q2 Total stockholders' equity (GAAP) $505,305 $760,723 $809,311 $820,439 $854,432 $797,893 $826,082 $819,733 Exclude intangible assets (125,117) (261,553) (257,552) (254,027) (250,916) (248,166) (247,543) (246,920) Tangible common equity (non-GAAP) $380,188 $499,170 $551,759 $566,412 $603,516 $549,727 $578,539 $572,813 Shares outstanding 29,927,746 36,874,055 36,618,729 35,912,243 35,105,779 35,106,697 35,108,120 35,047,800 Book value per share (GAAP) $16.88 $20.63 $22.10 $22.85 $24.34 $22.73 $23.53 $23.39 Tangible book value per share (non-GAAP) $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $16.48 $16.34 NON-GAAP FINANCIAL MEASURES – Dollars in thousands

 
45 As of Period End or for the Three Months Ended June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 Profitability: Net income (GAAP) $ 18,584 $ 20,990 $ 22,544 $ 20,457 $ 16,846 Pre-tax, pre-provision net income (non-GAAP) 21,357 27,592 29,299 26,495 21,780 Diluted earnings per share $ 0.52 $ 0.59 $ 0.64 $ 0.58 $ 0.48 Return on average assets (GAAP) 1.01 % 1.13 % 1.26 % 1.17 % 0.95 % Pre-tax, pre-provision return on average assets (non-GAAP) 1.16 1.49 1.64 1.52 1.22 Return on average common equity (GAAP) 9.19 10.27 11.46 10.21 8.19 Return on average tangible common equity (non-GAAP) 13.68 15.20 17.21 15.05 12.04 Net interest margin 3.04 3.57 3.98 3.91 3.56 Efficiency ratio 62.6 58.7 58.0 61.1 65.5 Noninterest expense to average total assets 1.94 % 2.11 % 2.26 % 2.39 % 2.32 % Balance Sheet: Total assets $ 7,316,467 $ 7,200,312 $ 6,980,100 $ 7,236,806 $ 7,115,410 Loans receivable, net 3,834,368 3,959,206 4,007,872 4,083,003 4,204,936 Total deposits $ 6,330,190 $ 6,237,735 $ 5,924,840 $ 5,789,022 $ 5,595,543 Loan to deposit ratio 61.2 % 64.1 % 68.4 % 71.3 % 76.0 % Capital: Book value per share (GAAP) $ 22.94 $ 22.13 $ 22.73 $ 23.53 $ 23.39 Tangible book value per share (non-GAAP) $ 15.83 $ 15.04 $ 15.66 $ 16.48 $ 16.34 Leverage ratio 8.9 % 9.2 % 9.7 % 9.9 % 9.9 % Total capital ratio 14.4 % 14.0 % 14.0 % 14.1 % 14.1 % Credit Quality: Nonperforming assets to total assets 0.14 % 0.09 % 0.08 % 0.07 % 0.07 % ACL on loans to loans receivable (GAAP) 1.02 1.05 1.06 1.08 1.09 – Dollars in thousands – Refer to Appendix for calculation of non-GAAP financial measure. QUARTERLY FINANCIAL STATISTICS

 
v3.23.2
Cover Page Cover Page
Jul. 20, 2023
Document Information [Line Items]  
Document Type 8-K
Document Period End Date Jul. 20, 2023
Entity Registrant Name HERITAGE FINANCIAL CORP
Entity File Number 000-29480
Entity Incorporation, State or Country Code WA
Entity Tax Identification Number 91-1857900
Entity Address, Address Line One 201 Fifth Avenue SW,
Entity Address, City or Town Olympia
Entity Address, State or Province WA
Entity Address, Postal Zip Code 98501
City Area Code (360)
Local Phone Number 943-1500
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common stock, no par value
Trading Symbol HFWA
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Entity Central Index Key 0001046025
Amendment Flag false
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