Heritage Financial : Q4 2022 Investor Presentation

INVESTOR PRESENTATION

Q4 2022

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:

• the U.S. and global economies, and consumer and corporate customers, including economic activity, market liquidity, employment levels and labor shortages, including the effects of inflation, a potential recession or slowed economic growth;
• losses ("ACL") on loans and provision for credit losses on loans 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 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;
• 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;
• 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;
• risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar;
• 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
• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, 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 millions unless otherwise noted, except per share amounts.

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COMPANY OVERVIEW

OVERVIEW

Heritage Branch

Metropolitan Statistical Areas

Seattle-Tacoma-Bellevue, WA	Eugene-Springfield, OR
Portland-Vancouver-Hillsboro,OR-WA	Boise-Nampa, Idaho

• Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map.
• Market information as of January 10, 2023.
• Refer to Appendix for calculation of non-GAAP financial measure.
• Return on average equity ("ROAE"). Return on average tangible common equity ("ROATCE").

Overview

NASDAQ symbol	HFWA
Stock price	$29.45
Market capitalization	$1.03 billion
Institutional ownership	79.3%
Headquarters	Olympia, WA
# of branches	51
Year established	1927

Q4 2022 Financial Highlights

Assets	$6.98 billion
Deposits	$5.92 billion
Loans receivable	$4.05 billion
Net income (GAAP)	$22.5 million
Pre-tax,pre-provision	$29.3 million
income (non-GAAP)
Net interest margin	3.98%
ROAE (GAAP)	11.46%
ROATCE (non-GAAP)	17.21%
Efficiency ratio	58.0%
Leverage ratio	9.7%
Total capital ratio	14.0%

4

			COMPANY STRATEGY
	Allocate capital to organically grow	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 included
	our core banking business		our recent branch openings in Eugene, Oregon and Boise, Idaho
		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 efficiency ratio to 58.0% during Q4
	rationalize branch network		2022 compared to 66.6% for the same quarter in 2021
		Ÿ Closed/Consolidated 35 branches since the beginning of 2010, including 12 branches in 2021
	Generate stable profitability and risk	Ÿ	1.26% return on average assets and 11.46% return on average equity in Q4 2022, annualized
	Ÿ Five-year growth in tangible book value, excluding AOCI (non-GAAP) of $5.75, or 45.1%, to
	adjusted returns
		$18.50 at December 31, 2022 from $12.75 at December 31, 2017
		Ÿ Be the "acquirer of choice" in the Pacific Northwest
	Active and disciplined in M&A	Ÿ	Most acquisitive bank in Oregon and Washington since 2013 with 5 acquisitions
		Ÿ	Target Metrics = IRR of >15% with earnbacks < 3 years
	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 75.1% since December 31, 2021 to 0.08% of total assets
	Focus on core deposits is key to	Ÿ	35.5% noninterest demand deposits to total deposits
	Ÿ	Noninterest demand deposit CAGR of 17% since 2017
	franchise value over the long term
	Ÿ 0.16% 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 totaled $2.5 million, or 100,090 shares, of common stock in 2022. 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: Leverage ratio = 9.7%; Total capital ratio = 14.0%

• 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 2022 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.