INVESTOR PRESENTATION

Q3 2023

FORWARD LOOKING STATEMENTS

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 Heritage Financial Corporation's ("we", "us", "our", or the "Company") financial condition, results of operations, beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance or business. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results for future periods to differ materially from those expressed in any forward-looking statements by, or on behalf of, the Company and could negatively affect the Company's operating results and stock price performance. Factors that may cause such a difference include, but are not limited to:

  • potential adverse impacts to economic conditions nationally or in our local market areas, other markets where the Company has lending relationships, 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;
  • changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;
  • the impact of continuing 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;
  • the effects of any federal government shutdown;
  • 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;
  • 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;
  • effects of critical accounting policies and judgments, including 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; 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.

2

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 October 17, 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

$16.62

Market capitalization

$583.2 million

Institutional ownership

78.8%

Headquarters

Olympia, WA

# of branches

50

Year established

1927

Q3 2023 Financial Highlights

Assets

$7.15 billion

Deposits

$5.64 billion

Loans receivable

$4.27 billion

Net income (GAAP)

$18.2 million

Pre-tax,pre-provision

$20.9 million

income (non-GAAP)

Net interest margin

3.47%

ROAE (GAAP)

8.80%

ROATCE (non-GAAP)

12.90%

Efficiency ratio

66.2%

Leverage ratio

9.9%

Total capital ratio

14.1%

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 including

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

Focused on achieving increased efficiencies with operational scale, internal focus on improving

processes and technology solutions

rationalize branch network

Ÿ

Closed/Consolidated 36 branches since the beginning of 2010, including 12 branches in 2021 and

one branch in 2023.

Generate stable profitability and risk

Ÿ

1.00% return on average assets and 8.80% return on average equity in Q3 2023, annualized

Ÿ Five-year growth in tangible book value (non-GAAP) of $3.14, or 24.0%, to $16.25 at September

adjusted returns

30, 2023 from $12.66 at September 30, 2018

Active and disciplined in M&A

Ÿ

Five acquisitions in Washington and Oregon since 2013

Ÿ

Target Metrics = IRR of >15% with earnbacks < 3 years

Maintain conservative underwriting

Ÿ

Long track record of strong underwriting with conservative risk profile

Ÿ

Disciplined approach to concentration risk

standards and actively manage the

Ÿ Nonaccrual loans to loans receivable decreased 53.3% to 0.07% year to date from 0.15% at

loan portfolio

December 31, 2022

Focus on core deposits is key to

Ÿ

31.7% noninterest demand deposits to total deposits

Ÿ

Noninterest demand deposit CAGR of 5.9% since 2018

franchise value over the long term

Ÿ 0.83% cost of total deposits; top 25% performance among US publicly traded banks in Q2 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 second quarter of 2023 quarter of 2023 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.

TECHNOLOGY STRATEGY

Objective: Invest in technologies that enable Community Banking @ Scale

HeritageONE

Technology convergence & omni- channel experiences

Ÿ

Ÿ

Ÿ

Ÿ

Cutting-edge, proprietary ecosystem providing Heritage the ability to develop custom business applications and systems integrations

Results in opportunity to integrate processes and technologies to create highly converged, omni-channel customer experiences

Designed to minimize the cost of internal solution development and accelerate the Bank's ability to integrate with best of breed vendor solutions

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

Ÿ

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

Enhance digital account opening capabilities in partnership with Q2; unified call, chat and self-service IVR solution in partnership with Cisco

Customize online banking and call center platforms to leverage data to drive personalized and omni-channel experiences

Key Outcomes

Community Banking @ Scale

Ÿ

Ÿ

Ÿ

Ÿ

Heritage Bank positioned to be a technology leader among Community Banks

Next generation front & back office integration delivering efficiency, consistency and scalability

Bankers equipped with better sales and service tools to meet growth & profitability objectives

Vastly improved customer experience for on-boarding & managing complex banking relationships

6

TECHNOLOGY INNOVATION

HeritageONE

Proprietary technology ecosystem for converging product and service solutions to enable Community Banking @ Scale

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

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.

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.

7

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

Ÿ Have a Green Team Committee focused on sustainability.

Ÿ Continually reducing our carbon footprint through branch consolidations and focus on recycling.

and

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.

Sustainability

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.

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.

Social

Responsibility

and Human

Capital

  • DEI training is provided to management and employees.
  • On September 13, 2023, the company dedicated an afternoon to volunteering at various organizations and nonprofits throughout our communities and closed all customer facing locations early. Over 500 employees participated and volunteered over 1,500 hours of service.
  • Donated $1.3 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.
  • Financed more than $111 million YTD 2023 and $96 million in 2022 of affordable housing projects.
  • Invested $31 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.

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

Governance 2022.

  • 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.
  • Maintain effective governance practices including Corporate Governance Guidelines, Committee Charters, Stock Ownership Guidelines, a Code of Ethics Policy and a Whistleblower Policy.

8

STRONG AND DIVERSE ECONOMIC LANDSCAPE

Seattle MSA Portland MSA

Boise MSA USA

18.9%

$106,526

16.2%

$88,444

12.9%

13.4%

$75,384

$73,503

7.2%

3.8%

3.7%

3.2%

3.8%

4.0%

3.9%

2.1%

Unemployment rate

2023-2028 Projected

2023-2028 Projected Median

Median

Population Growth

Household Income Growth

household income

Major Employers in the Pacific Northwest

- 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. 9

MAJOR MSA FUNDS UNDER

MANAGEMENT

Seattle MSA Funds Under Management = Loans + Deposits

$4,586

$5,212

$4,877

$4,715

$4,695

$4,671

$4,020

$3,845

$2,941

$2,111

$2,650

$3,231

$2,853

$2,646

$2,574

$2,524

$1,995

$1,526

$1,415

$1,850

$1,909

$1,936

$1,981

$2,024

$2,069

$2,121

$2,147

2017

2018

2019

2020

2021

2022

Q1 2023

Q2 2023

Q3 2023

Total loans

Deposits

Oregon and Portland MSA Funds Under Management = Loans + Deposits

$1,222

$1,388

$1,426

$1,428

$1,469

$1,166

$973

$856

$724

$774

$748

$797

$676

$723

$498

$477

$112

$379

$475

$490

$499

$664

$652

$680

$672

2017

2018

2019

2020

2021

2022

Q1 2023

Q2 2023

Q3 2023

Total loans

Deposits

-

Prior period information includes branches that were closed or consolidated prior to September 30, 2023.

10

-

Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium.

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Disclaimer

Heritage Financial Corporation published this content on 19 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 October 2023 14:12:07 UTC.