Heritage Financial : Q4 2021 Investor Presentation

INVESTOR PRESENTATION

Q4 2021

FORWARD LOOKING STATEMENTS

The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other factors that could cause or contribute to such impact include, but are not limited to:

• the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for credit losses ("ACL") on loans and provision for credit losses on loans that may be effected by deterioration in economic conditions, which may lead to increased losses and nonperforming assets in our loan portfolio, and may result in our ACL on loans no longer being adequate to cover actual losses, and require us to increase our ACL on loans;
• changes in economic conditions either nationally or in our market areas;
• changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; the transition away from LIBOR toward new interest rate benchmarks;
• the risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar;
• fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas;
• results of examinations of us by the bank regulators, including the possibility that any such regulatory authority may, among other things, initiate an enforcement action against the Company or our bank subsidiary which could require us to increase our ACL on loans, write-down assets, change our regulatory capital position, affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements on us, any of which could affect our ability to continue our growth through mergers, acquisitions or similar transactions and adversely affect our liquidity and earnings;
• our ability to control operating costs and expenses;
• increases in premiums for deposit insurance;
• the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
• staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;
• disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;
• our ability to retain key members of our senior management team;
• costs and effects of litigation, including settlements and judgments;
• our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected;
• increased competitive pressures among financial service companies;
• adverse changes in the securities markets;
• inability of key third-party providers to perform their obligations to us;
• changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the FASB, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods and as a result of the CARES Act and the CA Act; and
• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including from the CARES Act, CA Act, the COVID-19 pandemic, vaccination efforts and the other risks detailed from time to time in our filings with the SEC including our Annual Form 10-K and Quarterly Form 10-Qs.

The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. 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 future periods 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 results and stock price performance.

All dollars throughout the entire presentation are in thousands unless otherwise noted, except per share amounts.

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COMPANY OVERVIEW

OVERVIEW

Tacoma

HFWA Branch

Seattle-Tacoma-Bellevue MSA

Portland-Vancouver-Hillsboro MSA

Overview
NASDAQ symbol	HFWA
Stock price	$27.18
Market capitalization	$955.8 million
Institutional ownership	81.7%
Headquarters	Olympia, WA
# of branches	49
Year established	1927
Q4 2021 Financial Highlights
Assets	$7.43 billion
Deposits	$6.38 billion
Loans receivable	$3.82 billion
Net income (GAAP)	$19.4 million
Pre-tax,pre-provision income	$19.3 million
(non-GAAP)
Net interest margin	2.85%
Efficiency ratio	66.61%
Tier 1 leverage ratio	8.7%
Total risk based capital ratio	14.8%

• Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map.

-	Market information as of January 14, 2022.	4
-	Refer to Appendix for calculation of non-GAAP financial measure.

COMPANY STRATEGY

Active and disciplined in M&A

• Be the "acquirer of choice" in the Pacific Northwest
• Most acquisitive bank in Oregon and Washington since 2013 with 5 acquisitions
• Target Metrics = IRR of >15% with earnbacks < 3 years

Allocate capital to organically grow	Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and
Portland markets
our core banking business
Ÿ Disciplined approach to concentration risk and active portfolio management
Improve operational efficiencies and	Ÿ Achieving increased efficiencies with operational scale, internal focus on improving processes
and technology solutions, including improvement in the overhead ratio to 2.06% during Q4 2021
rationalize branch network	compared to 2.30% for the same quarter in 2020

• Closed/Consolidated 35 branches since the beginning of 2010, including 12 branches in 2021
• 1.38% return on average assets in 2021 compared to 0.74% in 2020 (2021 impacted by $29,372
  Generate stable profitability and risk reversal of provision for credit losses and 2020 impacted by $36,106 provision for credit losses)

adjusted returns	Ÿ	Five-year growth in tangible book value (non-GAAP) of $5.33, or 44.9%, to $17.19 at December
		31, 2021 from $11.86 at December 31, 2016
Maintain conservative underwriting	Ÿ	Long track record of strong underwriting with conservative risk profile
standards and actively manage the	Ÿ	Disciplined approach to concentration risk
loan portfolio	Ÿ	Nonaccrual loans decreased 59.1% since December 31, 2020 to 0.32% of total assets
	Ÿ	36.5% noninterest demand deposits to total deposits
Focus on core deposits is key to
Ÿ	Noninterest demand deposit CAGR of 21% since 2016
franchise value over the long term
Ÿ 0.09% cost of total deposits; top 25% performance among US publicly traded banks

	Ÿ History of increasing regular dividends and utilizing special dividends to manage capital
Proactive capital management	Ÿ	Repurchases in 2021 totaled $22.1 million, or 904,972 shares of common stock, and represented
	approximately 2.5% of common stock outstanding at December 31, 2020
	Ÿ	Strong capital ratios: Tier 1 leverage ratio = 8.7%; Total risk based capital ratio = 14.8%

• 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 third quarter of 2021 and includes banks nationwide with shares on NASDAQ or NYSE and total

	assets less than $100 billion; excluding pending merger targets.	5
-	Current quarter capital ratios are estimates pending completion and filing of the Company's regulatory reports.