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8-K

HERITAGE FINANCIAL CORP /WA/ (HFWA)

8-K 2021-01-29 For: 2021-01-28
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Added on April 04, 2026

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): January 28, 2021

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<br>incorporation or organization) (I.R.S. Employer<br>Identification No.)
201 Fifth Avenue SW, Olympia WA 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 class Trading symbol Name of each exchange on which registered
Common stock, no par value HFWA NASDAQ

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 January 28, 2021, Heritage Financial Corporation (“Heritage”) issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2020.

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 January 28, 2021.

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 January 28, 2021, Heritage issued a press release announcing a regular quarterly cash dividend of $0.20 per common share. The dividend will be paid on February 24, 2021 to shareholders of record at the close of business on February 10, 2021.

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:

Exhibit 99.1 Press Release dated January 28, 2021 announcing financial results for the fourth quarter and year ended December 31, 2020 and cash dividend.
Exhibit 99.2 Heritage Financial Corporation Presentation Materials

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:
January 28, 2021 /S/    JEFFREY J. DEUEL
Jeffrey J. Deuel
President and Chief Executive Officer
(Duly Authorized Officer)

Document

hfwarevisedlogoa01a021.jpg

FOR IMMEDIATE RELEASE

DATE: January 28, 2021

HERITAGE FINANCIAL ANNOUNCES FOURTH QUARTER AND ANNUAL 2020 RESULTS AND DECLARES REGULAR CASH DIVIDEND

•Net income was $23.9 million, or $0.66 per diluted share, for the quarter ended December 31, 2020, compared to $16.6 million, or $0.46 per diluted share, for the linked-quarter ended September 30, 2020 and $17.1 million, or $0.47 per diluted share, for the quarter ended December 31, 2019.

•Diluted earnings per share were $1.29 for the year ended December 31, 2020 compared to $1.83 for the year ended December 31, 2019.

•Completed the consolidation of nine branches on January 22, 2021, a decrease of 15% in total branches.

•Efficiency ratio was 60.50% for the quarter ended December 31, 2020 compared to 62.27% for the linked-quarter ended September 30, 2020 and 61.93% for the quarter ended December 31, 2019.

•Noninterest expense to average total assets, annualized, was 2.30% for the quarter ended December 31, 2020 compared to 2.17% for the linked-quarter ended September 30, 2020 and 2.57% for the quarter ended December 31, 2019.

•Reversal of provision for credit losses was $3.1 million for the quarter ended December 31, 2020 compared to a provision for credit losses of $2.7 million for the linked-quarter ended September 30, 2020. Provision for credit losses was $36.1 million for the year ended December 31, 2020 compared to $4.3 million for the year ended December 31, 2019.

•Capital remains strong with Tier 1 leverage ratio of 9.0% at December 31, 2020 compared to 8.8% at September 30, 2020 and total risk-based capital ratio of 14.0% at December 31, 2020 compared to 13.4% at September 30, 2020.

•Heritage ranked #1 in Washington on Newsweek’s America’s Best Banks List.

•Heritage declared a regular cash dividend of $0.20 per common share on January 27, 2021.

Olympia, WA - Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank ("Bank"), today reported that the Company had net income of $23.9 million for the quarter ended December 31, 2020 compared to $16.6 million for the linked-quarter ended September 30, 2020 and $17.1 million for the quarter ended December 31, 2019. Diluted earnings per share for the quarter ended December 31, 2020 were $0.66 compared to $0.46 for the linked-quarter ended September 30, 2020 and $0.47 for the quarter ended December 31, 2019.

Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "We are pleased with our progress in 2020 in spite of the overlay of the pandemic which has been difficult for everyone. I am very proud of our team for navigating the challenges of the current environment and staying focused on expense control, continuing to enhance our back office processes, and effectively managing risk. We continue to enhance our technology solutions which we expect will improve operating efficiencies.

Further, we are pleased with the success of our continuing efforts to have a positive impact on housing in our local communities. We are proud to have been selected as the construction lender for the Community Roots Housing’s (formerly known as Capitol Hill Housing) workforce housing development in Seattle’s Capitol Hill neighborhood. The project, known as Heartwood Apartments, will consist of 126 units with a mix of 113 studio and 13 one-bedroom

units and will be built out of a panelized mass timber construction and adhere to standards that will garner a Green 4-star certification."

COVID-19 Response

The Company continues to be committed to supporting its community and its customers during these unprecedented times. This includes participation in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) in accordance with the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020 ("CARES Act"), as amended. Through the conclusion of the first round of the SBA's PPP on August 8, 2020, the Bank had funded 4,642 SBA PPP loans totaling $897.4 million with an average loan size of $193,000. Of the funded loans, approximately 21% of both the count and the originated balance were loans to new customers. During the quarter ended December 31, 2020, the Bank received principal and interest forgiveness payments from the SBA of $159.2 million, which represented approximately 17.7% of the originated SBA PPP loans. Subsequent to year-end, the Bank started processing applications under the second round of the SBA's PPP in accordance with the Coronavirus Response and Relief Supplementary Appropriations Act enacted on December 27, 2020.

During the year ended December 31, 2020, under the CARES Act and related regulatory guidance, and as direct result of COVID-19 related issues, the Bank accommodated a variety of loan modifications on 2,041 loans with a balance of $666.6 million at March 31, 2020 (the "COVID Modifications"). The Bank follows regulatory guidance and does not report the COVID Modifications as a troubled-debt restructured ("TDR") loan or assess TDR status unless the payment deferment period exceeds 180-days. COVID Modifications and TDRs with payment deferrals are collectively considered payment deferral modification status. At December 31, 2020, approximately 175 loans totaling $69.9 million were in payment deferral modification status, with 50.3% of those classified as TDR. Approximately 88.0% of COVID Modifications with payment deferrals during the year ended December 31, 2020 are no longer on payment deferral status at December 31, 2020.

Financial Highlights

The following table provides financial highlights at the dates and for the periods indicated:

As of Period End or for the Three Months Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(Dollars in thousands, except per share amounts)
Net income $ 23,882 $ 16,636 $ 17,126
Pre-tax, pre-provision income (1) $ 25,178 $ 21,843 $ 22,129
Diluted earnings per share $ 0.66 $ 0.46 $ 0.47
Return on average assets (2) 1.42 % 1.00 % 1.22 %
Return on average equity (2) 11.74 % 8.28 % 8.42 %
Return on average tangible common equity (1) (2) 17.62 % 12.66 % 12.94 %
Net interest margin (2) 3.53 % 3.38 % 4.02 %
Cost of total deposits (2) 0.14 % 0.19 % 0.39 %
Efficiency ratio 60.50 % 62.27 % 61.93 %
Noninterest expense to average total assets (2) 2.30 % 2.17 % 2.57 %
Total assets $ 6,615,318 $ 6,685,889 $ 5,552,970
Loans receivable, net $ 4,398,462 $ 4,593,390 $ 3,731,708
Total deposits $ 5,597,990 $ 5,689,048 $ 4,582,676
Loan to deposit ratio (3) 79.8 % 82.0 % 82.2 %
Book value per share $ 22.85 $ 22.36 $ 22.10
Tangible book value per share (1) $ 15.77 $ 15.27 $ 15.07

(1) See Non-GAAP Financial Measures section herein.

(2) Annualized.

(3) Loans receivable divided by deposits.

Investment securities decreased $32.3 million, or 3.9%, to $802.2 million at December 31, 2020 from $834.5 million at September 30, 2020 primarily as a result of calls, maturities and payments of investment securities of $56.3 million, offset partially by investment purchases of $35.2 million.

Loans receivable decreased $198.1 million, or 4.2%, to $4.47 billion at December 31, 2020 from $4.67 billion at September 30, 2020 due primarily to a decrease of $152.7 million, or 17.6%, in SBA PPP loans as the Bank started processing forgiveness applications and receiving principal forgiveness payments from the SBA during the quarter. Additionally, loans receivable decreased due to a decrease in consumer loans of $32.1 million as a result of the cessation of the indirect auto loan business during the quarter ended March 31, 2020 and a decrease in commercial and industrial loans of $17.5 million due primarily to decreases in existing loans through payment activities, including a decrease of $13.2 million in two significant relationships, offset partially by an increase in non-owner occupied commercial real estate ("CRE") loans of $25.3 million due primarily to new loan originations.

The following table summarizes the Company's loan portfolio by type of loan and amortized cost at the dates indicated:

December 31, 2020 September 30, 2020 December 31, 2019
Balance % of Total Balance % of Total Balance % of Total
(Dollars in thousands)
Commercial business:
Commercial and industrial $ 733,098 16.4 % $ 750,557 16.1 % $ 852,220 22.6 %
SBA PPP 715,121 16.0 867,782 18.6 — —
Owner-occupied CRE 856,684 19.2 859,338 18.4 805,234 21.4
Non-owner occupied CRE 1,410,303 31.5 1,384,973 29.7 1,288,779 34.2
Total commercial business 3,715,206 83.1 3,862,650 82.8 2,946,233 78.2
Residential real estate 122,756 2.7 131,921 2.8 131,660 3.5
Real estate construction and land development:
Residential 78,259 1.8 99,650 2.1 104,296 2.8
Commercial and multifamily 227,454 5.1 215,472 4.6 170,350 4.5
Total real estate construction and land development 305,713 6.9 315,122 6.7 274,646 7.3
Consumer 324,972 7.3 357,037 7.7 415,340 11.0
Loans receivable 4,468,647 100.0 % 4,666,730 100.0 % 3,767,879 100.0 %
Allowance for credit losses on loans (70,185) (73,340) (36,171)
Loans receivable, net $ 4,398,462 $ 4,593,390 $ 3,731,708

Total deposits decreased $91.1 million, or 1.6%, to $5.60 billion at December 31, 2020 from $5.69 billion at September 30, 2020 due primarily to decreases in money market accounts of $116.8 million, or 10.8%, and certificates of deposit of $44.5 million, or 10.0%, offset partially by increases in interest bearing demand deposits of $63.5 million, or 3.8%, and savings accounts of $15.5 million, or 3.0%. The decrease in money market accounts was primarily due to a $95.7 million decrease relating to a public depositor relationship during the quarter ended December 31, 2020. The Bank has yet to see a significant outflow of deposits from borrowers that received SBA PPP loans. Non-maturity deposits as a percentage of total deposits increased to 92.9% at December 31, 2020 from 92.2% at September 30, 2020.

The following table summarizes the Company's deposits at the dates indicated:

December 31, 2020 September 30, 2020 December 31, 2019
Balance % of Total Balance % of Total Balance % of Total
(Dollars in thousands)
Noninterest demand deposits $ 1,980,531 35.4 % $ 1,989,247 35.0 % $ 1,446,502 31.6 %
Interest bearing demand deposits 1,716,123 30.7 1,652,661 29.0 1,348,817 29.4
Money market accounts 962,983 17.2 1,079,814 19.0 753,684 16.4
Savings accounts 538,819 9.6 523,286 9.2 509,095 11.2
Total non-maturity deposits 5,198,456 92.9 5,245,008 92.2 4,058,098 88.6
Certificates of deposit 399,534 7.1 444,040 7.8 524,578 11.4
Total deposits $ 5,597,990 100.0 % $ 5,689,048 100.0 % $ 4,582,676 100.0 %

Total stockholders’ equity increased $17.3 million, or 2.2%, to $820.4 million at December 31, 2020 from $803.1 million at September 30, 2020. Changes in stockholders' equity during the periods indicated were as follows:

Three Months Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(In thousands)
Balance, beginning of period $ 803,129 $ 793,652 $ 804,127
Net income 23,882 16,636 17,126
Accumulated other comprehensive loss, net (190) (773) (2,147)
Dividends paid (7,233) (7,227) (10,673)
Shares repurchased (14) (7) (1)
Other 865 848 879
Balance, end of period $ 820,439 $ 803,129 $ 809,311

During the quarter ended December 31, 2020, no shares were repurchased under the Company's stock repurchase plan as the Company halted repurchases in March 2020 (other than the cancellation of stock to pay withholding taxes on vested restricted stock awards or units) in response to the COVID-19 pandemic.

The Company and Heritage Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them to be categorized as “well-capitalized”. The following table summarizes capital ratios for the Company at the dates indicated:

December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
Capital Ratios:
Stockholders' equity to total assets 12.4 % 12.0 % 14.6 %
Tangible common equity to tangible assets (1) 8.9 % 8.5 % 10.4 %
Tangible common equity to tangible assets, excluding SBA PPP loans (1) 10.0 % 9.9 % 10.4 %
Common equity Tier 1 capital to risk-weighted assets (2) (3) 12.3 % 11.7 % 11.5 %
Tier 1 leverage capital to average quarterly assets (2) (3) 9.0 % 8.8 % 10.6 %
Tier 1 capital to risk-weighted assets (2) (3) 12.8 % 12.2 % 12.0 %
Total capital to risk-weighted assets (2) (3) 14.0 % 13.4 % 12.8 %

(1) See Non-GAAP Financial Measures section herein.

(2) Capital measures beginning in 2020 reflect the revised CECL capital transition provisions adopted by the Board of Governors of the Federal Reserve System ("Federal Reserve") and the Federal Deposit Insurance Corporation

("FDIC"), that allow us the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period.

(3) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.

Allowance for Credit Losses

Effective January 1, 2020, the Company adopted the Financial Accounting Standard Board's Accounting Standards Update 2016-13: Financial Instruments: Credit Losses (Topic 326), as amended, and commonly referred to as "CECL," under the modified retrospective method; therefore, periods prior to the effective date are not comparable. The allowance for credit losses ("ACL") on loans does not include a reserve for SBA PPP loans as these loans are fully guaranteed by the SBA.

During the quarter ended December 31, 2020, the ACL on loans decreased $3.2 million, or 4.3%, to $70.2 million due primarily to a reversal of provision for credit losses on loans of $2.8 million and net charge-offs of $363,000 during the quarter ended December 31, 2020.

The reversal of provision for credit losses on loans recognized during the quarter ended December 31, 2020 was primarily due to decreases in loan balances, decreases in the allowance on individually evaluated loans and as a result of slight improvements in the economic forecast at December 31, 2020 as compared to the forecast for the linked-quarter ended September 30, 2020.

The Bank recognized net charge-offs of $363,000 during the quarter ended December 31, 2020 due primarily to a partial charge-off of one commercial and multifamily real estate construction and land development loan of $417,000 as a result of cost overruns and delays in construction. Net charge-offs were $481,000 for the linked-quarter ended September 30, 2020 and $1.9 million for the same quarter in 2019.

The following table provides detail on the changes in the ACL on loans and unfunded commitments and the related provision for credit losses for the periods indicated:

As of Period End or for the Three Months Ended As of Period End or for the Three Months Ended As of Period End or for the Three Months Ended
December 31, 2020 September 30, 2020 December 31, 2019
ACL on Loans ACL on Unfunded Commitment Total ACL on Loans ACL on Unfunded Commitment Total ACL on Loans ACL on Unfunded Commitment Total
(Dollars in thousands)
Balance, beginning of period $ 73,340 $ 5,022 $ 78,362 $ 71,501 $ 4,612 $ 76,113 $ 36,518 $ 306 $ 36,824
(Reversal of) provision for credit losses (2,792) (341) (3,133) 2,320 410 2,730 1,558 — 1,558
Net charge-offs (363) — (363) (481) — (481) (1,905) — (1,905)
Balance, end of period $ 70,185 $ 4,681 $ 74,866 $ 73,340 $ 5,022 $ 78,362 $ 36,171 $ 306 $ 36,477

Credit Quality

Nonperforming assets increased to 0.88% of total assets at December 31, 2020 compared to 0.79% of total assets at September 30, 2020, due primarily to an increase in nonaccrual loans of $5.5 million, or 10.4%, during the quarter ended December 31, 2020. Nonperforming assets at December 31, 2020 and September 30, 2020 consist only of nonaccrual loans. The increase in nonaccrual loans was primarily caused by two predominately commercial and industrial loan relationships totaling $5.6 million exhibiting increased signs of cash flow deterioration, due partially to the COVID-19 pandemic, during the quarter ended December 31, 2020. Additionally, two predominately owner-occupied CRE loan relationships totaling $2.2 million which had prior COVID Modifications continued to decline in credit quality, warranting a transfer to nonaccrual status. The Bank is actively working with the borrowers to secure a positive resolution of these nonaccrual loans.

Changes in nonaccrual loans during the periods indicated were as follows:

Three Months Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(In thousands)
Balance, beginning of period $ 52,604 $ 33,628 $ 41,497
Additions of previously classified pass graded loans 1,298 17,873 764
Additions of previously classified potential problem loans 2,446 2,979 1,043
Additions of previously classified TDR loans 4,601 — 4,686
Net principal payments and transfers to accruing status (2,268) (1,429) (2,216)
Charge-offs (589) (447) (1,249)
Balance, end of period $ 58,092 $ 52,604 $ 44,525

The ACL on loans to nonaccrual loans decreased to 120.82% at December 31, 2020 compared to 139.42% at September 30, 2020 due primarily to the increase in nonaccrual loans and secondarily by the decrease in the ACL on loans.

Potential problem loans are loans classified as "Special Mention" or worse that are not classified as a TDR or nonaccrual loan and are not individually evaluated for credit loss, but which management is closely monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms.

Potential problem loans increased $45.2 million, or 28.3%, to $205.0 million at December 31, 2020 compared to $159.8 million at September 30, 2020. The increase was primarily attributed to additions of previously classified pass graded loans impacted by the COVID-19 pandemic, of which 98.9% were downgraded to special mention and 1.1% were downgraded to substandard. Of the $80.5 million of additions, $43.5 million, or 54.1%, had COVID Modifications. Potential problem loan increases were offset partially by transfers of loans to TDR status of $14.9 million, of which $14.2 million, or 95.4%, were loans with initial COVID Modifications that were subsequently modified to extend beyond the COVID Modification's 180-days payment deferment period.

Changes in potential problem loans during the periods indicated were as follows:

Three Months Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(In thousands)
Balance, beginning of period $ 159,764 $ 100,554 $ 85,314
Addition of previously classified pass graded loans 80,470 70,177 23,498
Upgrades to pass graded loan status (2,795) (2,948) (8,367)
Net principal payments (15,071) (4,840) (10,537)
Transfers of loans to nonaccrual and TDR status (17,381) (3,179) (2,120)
Balance, end of period $ 204,987 $ 159,764 $ 87,788

Operating Results

Net interest income increased $2.8 million, or 5.6%, to $52.5 million for the quarter ended December 31, 2020 from $49.7 million for the linked-quarter ended September 30, 2020 due primarily to an increase in the yield of total interest earning assets, and specifically the increase in loan yield due to the impact of loan forgiveness, which prompted the recognition of the remaining net deferred fees of the underlying loans. Net interest income additionally increased due to the decreases in the cost of total interest bearing liabilities, which decreased due to maturities of higher yielding certificates of deposit during the third and fourth quarters of 2020 and decreases in offering rates on certain non-maturity deposit products.

Net interest income increased $3.3 million, or 6.8%, from $49.1 million for the quarter ended December 31, 2019 due primarily to decreases in the cost of total interest bearing liabilities due primarily to decreases in short-term market interest rates and an increase in average total interest earning assets, predominately from SBA PPP loans, offset partially by decreases in the yield on total interest earning assets reflecting decreases in market interest rates.

The federal funds target rate history since December 31, 2018 is as follows:

Change Date Rate (%) Rate Change (%)
December 31, 2018 2.25 - 2.50% N/A
July 31, 2019 2.00 - 2.25% -0.25%
September 18, 2019 1.75 - 2.00% -0.25%
October 30, 2019 1.50 - 1.75% -0.25%
March 3, 2020 1.00 - 1.25% -0.50%
March 16, 2020 0.00 - 0.25% -1.00%

Net interest margin increased 15 basis points to 3.53% for the quarter ended December 31, 2020 from 3.38% for the linked-quarter ended September 30, 2020 due primarily to the 21 basis point impact of the recognition of the remaining net deferred fees on the forgiven SBA PPP loans, offset partially by the impact of the change in the mix of total interest earning assets (a lower ratio of higher yielding loans and investment securities as a percentage of total earning assets). Average interest earning deposits increased $169.8 million, or 43.6%, and earned a yield of only 10 basis points during the quarter ended December 31, 2020, while average loans receivable, net decreased $64.4 million, or 1.4%, and investment securities decreased $46.9 million, or 5.5%. Additionally, net interest margin increased due to the seven basis point decrease in the cost of total interest bearing deposits to 0.22% during the quarter ended December 31, 2020 from 0.29% during the linked-quarter ended September 30, 2020 due primarily to maturities of higher yielding certificates of deposit and a decrease in interest rates offered on our non-maturity deposits to prevailing market rates.

Net interest margin decreased 49 basis points from 4.02% for the quarter ended December 31, 2019 due primarily to decreases in yields on adjustable-rate interest earning assets following decreases in short-term market rates and the change in the mix of total interest earning assets, including a significant increase in average interest earning deposits to 9.5% of total earning assets at December 31, 2020 compared to 3.7% at December 31, 2019, offset partially by decreases in the cost of total interest bearing deposits.

Loan yield increased 27 basis points to 4.39% for the quarter ended December 31, 2020 from 4.12% for the linked-quarter ended September 30, 2020 due mostly to the impact of the recognition of the remaining net deferred fees of forgiven SBA PPP loans of 27 basis points, offset slightly by decreases in yield on adjustable rate loans and newly originated loans. Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, was 4.34% for the quarter ended December 31, 2020 compared to 4.35% for the linked-quarter ended September 30, 2020. There was no impact to loan yield from nonaccrual activity as compared to the linked-quarter ended September 30, 2020.

Loan yield decreased 61 basis points from 5.00% for the quarter ended December 31, 2019 due primarily to the multiple and sustained decreases in short-term market rates and the lower-yielding SBA PPP loans. Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, was 4.89% for the comparable quarter ended December 31, 2019. The impact from nonaccrual activity on loan yield from the same period in 2019 was an improvement of one basis point.

The following table presents the loan yield and the impacts of the balances and interest and fees earned on SBA PPP loans and the incremental accretion on purchased loans on this financial measure for the periods presented below:

Three Months Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
Non-GAAP Measure:(1)
Loan yield (GAAP) 4.39 % 4.12 % 5.00 %
Exclude impact from SBA PPP loans 0.02 % 0.31 % — %
Exclude impact from incremental accretion on purchased loans(2) (0.07) % (0.08) % (0.11) %
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans (non-GAAP) 4.34 % 4.35 % 4.89 %

(1) See Non-GAAP Financial Measures section.

(2) Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the

acquisition date, or as modified by the adoption of ASU 2016-13. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.

The yield on the investment portfolio decreased six basis points to 2.17% for the quarter ended December 31, 2020 from 2.23% for the linked-quarter ended September 30, 2020 and decreased 48 basis points from 2.65% for the quarter ended December 31, 2019 due primarily to sustained decreases in market interest rates impacting adjustable rate securities and lower yields on recent purchases of investment securities compared to the existing portfolio.

The cost of total deposits decreased five basis points to 0.14% during the quarter ended December 31, 2020 from 0.19% for the linked-quarter ended September 30, 2020 primarily related to a decrease in the cost of certificates of deposit and interest bearing demand and money market accounts due to the reasons mentioned previously. The cost of total deposits decreased 25 basis points from 0.39% for the quarter ended December 31, 2019 due primarily to decreases in market interest rates following decreases in the federal funds target rates.

Reversal of provision for credit losses of $3.1 million was recorded during the quarter ended December 31, 2020, which is comprised of the estimated reversal of credit losses for loans and estimated reversal of credit losses for unfunded commitments.

The Bank recorded reversal of provision for credit losses on loans of $2.8 million during the quarter ended December 31, 2020 compared to provision for credit losses on loans of $2.3 million during the quarter ended September 30, 2020. The reversal of provision was necessary to decrease the ACL on loans to an amount that management determined to be appropriate and estimated the credit losses on loans at December 31, 2020 based on its adopted CECL methodology, as described in the Allowance for Credit Losses section above. The provision for loan losses for the same period in 2019 was estimated under the previously utilized incurred loss methodology.

Noninterest income increased $3.1 million, or 37.5%, to $11.3 million for the quarter ended December 31, 2020 from $8.2 million for the linked-quarter ended September 30, 2020 due primarily to an increase in other income of $1.6 million, or 116.1%, which consisted primarily of a net gain on sale of two branches of $935,000 (discussed below), a termination fee from the divestiture of our trust department of $651,000 and a decrease in the counterparty valuation adjustment on back-to-back interest rate swaps of $450,000. The increase in noninterest income was also due to an increase in bank-owned life insurance income due primarily to a death benefit of $1.2 million and an increase in the gain on sale of loans, net of $476,000, or 33.0%, from the combination of higher origination and sales volume and higher earned sales margin during the quarter ended December 31, 2020, reflecting the low interest rate environment.

Noninterest income increased $2.3 million, or 25.2%, from $9.0 million for the same period in 2019 due primarily to an increase in gain on sale of loans, net of $1.1 million, or 136.6%, due to higher origination volume and sales margin similar to that discussed above in addition to an increase in bank-owned life insurance income from the combination of the death benefit and an increase in the average cash surrender value compared to the same period in 2019. Noninterest income also increased due to an increase in other income of $883,000, or 41.9%, primarily as a result of the net gain on sale of branches and the termination fee discussed above, offset partially by decreases in interest rate swap fees of $689,000, or 75.0%, due to fluctuation in customer demand.

Noninterest expense increased $2.5 million, or 7.0%, to $38.6 million for the quarter ended December 31, 2020 from $36.0 million for the linked-quarter ended September 30, 2020 due primarily to an increase in other expense of $1.4 million, or 66.8%, primarily related to the branch consolidation plan discussed below, including impairments of leases of $490,000 and branches held for sale of $630,000. The increase in noninterest expense was also due to an increase in compensation and employee benefits of $841,000, or 3.9%, primarily related to increases in incentive plan expense and severance packages related to the branch consolidation plan.

Noninterest expense increased $2.6 million, or 7.1%, compared to $36.0 million for the quarter ended December 31, 2019 due primarily to an increase in federal deposit insurance premium expense of $698,000 from an increase in the Bank's assessment rate during the quarter ended December 31, 2020 and utilization of the Bank's small bank credit for the full assessment due during the quarter ended December 31, 2019. All small credits were fully utilized by the third quarter of 2020. Noninterest expense also increased due to the increase in other expense of $791,000, or 29.6%, due primarily to branch consolidation impairments previously mentioned, offset partially by the reduction of employee lodging, meal and travel expenses related to the Company's suspension of non-essential travel due to COVID-19. Noninterest expense also increased due to an increase in state/municipal business and use taxes expense as a result of an increase in the tax rate starting in second quarter 2020 to 1.8% from 1.5%.

Income tax expense was $4.4 million for the quarter ended December 31, 2020 compared $2.5 million for the linked-quarter ended September 30, 2020 and $3.4 million for the quarter ended December 31, 2019. The effective

tax rate was 15.6% for the quarter ended December 31, 2020 compared to 13.0% for the linked-quarter ended September 30, 2020 and 16.7% for the quarter ended December 31, 2019. The increase in the effective tax rate from the linked-quarter ended September 30, 2020 was due primarily to an increase in estimated annual pre-tax income for the year ended December 31, 2020 which decreased 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 decrease in the effective tax rate from the quarter ended December 31, 2019 was due to the year-over-year decrease in estimated annual pre-tax income which had the opposite impact on favorable permanent tax items discussed above for the linked-quarter explanation.

Branch Consolidation Plan

Subsequent to December 31, 2020, the Company completed its plan to consolidate nine branches, integrating them into other branches within its network, to create a more efficient branch footprint. One branch was closed during October 2020 and eight branches were closed mid-January 2021, representing a decrease of 15% in the number of total branches. These actions are a result of the Company’s increased focus on balancing physical locations and digital banking channels, driven by increased client usage of online and mobile banking and a commitment to improve digital banking technology.

The Branch Consolidation Plan resulted in a reduction in pre-tax income of $1.5 million for the three months ended December 31, 2020 as recognized in the following line items on the Condensed Consolidated Statements of Income:

Three Months Ended December 31, 2020
(In thousands)
Noninterest income
Other income (Net loss on sale on branch sold prior to December 31, 2020) (1) $ (99)
Noninterest expense
Compensation and other benefits expense (Severance) $ 260
Occupancy and equipment expense (Write-off of fixed assets) 18
Other expense (Impairments of leases and property held for sale) 1,120
Total noninterest expense impact $ 1,398
Net impact in pre-tax income $ (1,497)

(1) Excludes gain of $1.0 million not related to the Branch Consolidation Plan.

Dividend

On January 27, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable on February 24, 2021 to shareholders of record as of the close of business on February 10, 2021.

Stock Repurchase Plan

As noted above, the Company suspended its stock repurchase plan in March 2020 in response to the COVID-19 pandemic. Due to the Company’s capital position and the reduced uncertainty surrounding the impact of the COVID-19 pandemic, the Company is reinstituting its stock repurchase plan effective February 1, 2021. As of December 31, 2020, there were 1,643,276 shares available for repurchase under the current stock repurchase plan. The actual timing, number and value of shares repurchased under the stock repurchase plan will depend on a number of factors including price, general business and market conditions, and alternative investment opportunities. The stock repurchase plan does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on January 28, 2021 at 11:00 a.m. Pacific time. To access the call, please dial (877) 692-8955 -- access code 4204813 a few minutes prior to 11:00 a.m. Pacific time. The call will be available for replay through February 11, 2021 by dialing (866) 207-1041 -- access code 5472289.

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 branching network of 53 banking offices in Washington and Oregon. 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

Non-GAAP Financial Measures

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures in addition to results presented in accordance with GAAP. Management 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 reflected in the current quarter and year-to-date results and facilitate comparison of our performance with the performance of our peers. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures. 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 total stockholders' equity or operating results determined 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.

December 31,<br>2020 September 30,<br>2020 June 30,<br>2020 March 31,<br>2020 December 31,<br>2019
(Dollar amounts in thousands, except per share amounts)
Tangible common equity to tangible assets and tangible book value per share:
Total stockholders' equity (GAAP) $ 820,439 $ 803,129 $ 793,652 $ 798,438 $ 809,311
Exclude intangible assets (254,027) (254,886) (255,746) (256,649) (257,552)
Tangible common equity (non-GAAP) $ 566,412 $ 548,243 $ 537,906 $ 541,789 $ 551,759
Total assets (GAAP) $ 6,615,318 $ 6,685,889 $ 6,562,359 $ 5,587,300 $ 5,552,970
Exclude intangible assets (254,027) (254,886) (255,746) (256,649) (257,552)
Tangible assets (non-GAAP) $ 6,361,291 $ 6,431,003 $ 6,306,613 $ 5,330,651 $ 5,295,418
Total assets (GAAP) $ 6,615,318 $ 6,685,889 $ 6,562,359 $ 5,587,300 $ 5,552,970
Exclude intangible assets (254,027) (254,886) (255,746) (256,649) (257,552)
Exclude SBA PPP loans (715,121) (867,782) (856,490) — —
Tangible assets, excluding SBA PPP loans (non-GAAP) $ 5,646,170 $ 5,563,221 $ 5,450,123 $ 5,330,651 $ 5,295,418
December 31,<br>2020 September 30,<br>2020 June 30,<br>2020 March 31,<br>2020 December 31,<br>2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollar amounts in thousands, except per share amounts)
Stockholders' equity to total assets (GAAP) 12.4 % 12.0 % 12.1 % 14.3 % 14.6 %
Tangible common equity to tangible assets (non-GAAP) 8.9 % 8.5 % 8.5 % 10.2 % 10.4 %
Tangible common equity to tangible assets, excluding SBA PPP loans (non-GAAP) 10.0 % 9.9 % 9.9 % 10.2 % 10.4 %
Shares outstanding 35,912,243 35,910,300 35,908,908 35,888,494 36,618,729
Book value per share (GAAP) $ 22.85 $ 22.36 $ 22.10 $ 22.25 $ 22.10
Tangible book value per share (non-GAAP) $ 15.77 $ 15.27 $ 14.98 $ 15.10 $ 15.07
December 31,<br>2020 September 30,<br>2020 June 30,<br>2020 March 31,<br>2020 December 31,<br>2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollar amounts in thousands)
ACL on loans to loans receivable, excluding SBA PPP loans
Allowance for credit losses on loans $ 70,185 $ 73,340 $ 71,501 $ 47,540 $ 36,171
Loans receivable (GAAP) $ 4,468,647 $ 4,666,730 $ 4,666,333 $ 3,852,376 $ 3,767,879
Exclude SBA PPP loans (715,121) (867,782) (856,490) — —
Loans receivable, excluding SBA PPP loans (non-GAAP) $ 3,753,526 $ 3,798,948 $ 3,809,843 $ 3,852,376 $ 3,767,879
ACL on loans to loans receivable (GAAP) 1.57 % 1.57 % 1.53 % 1.23 % 0.96 %
ACL on loans to loans receivable, excluding SBA PPP loans (non-GAAP) 1.87 % 1.93 % 1.88 % 1.23 % 0.96 % Three Months Ended
--- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(Dollar amounts in thousands)
Pre-tax, pre-provision income:
Net income (GAAP) $ 23,882 $ 16,636 $ 17,126
Add income tax expense 4,429 2,477 3,445
Add (reversal of) provision for credit losses (3,133) 2,730 1,558
Pre-tax, pre-provision income (non-GAAP) $ 25,178 $ 21,843 $ 22,129
Three Months Ended
--- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(Dollar amounts in thousands)
Return on average tangible common equity, annualized:
Net income (GAAP) $ 23,882 $ 16,636 $ 17,126
Add amortization of intangible assets 859 860 975
Exclude tax effect of adjustment (180) (181) (205)
Tangible net income (non-GAAP) $ 24,561 $ 17,315 $ 17,896
Average stockholders' equity (GAAP) $ 808,999 $ 799,738 $ 806,868
Exclude average intangible assets (254,587) (255,453) (258,177)
Average tangible common stockholders' equity (non-GAAP) $ 554,412 $ 544,285 $ 548,691
Three Months Ended
--- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(Dollar amounts in thousands)
Return on average equity, annualized (GAAP) 11.74 % 8.28 % 8.42 %
Return on average tangible common equity, annualized (non-GAAP) 17.62 % 12.66 % 12.94 %
Three Months Ended
--- --- --- --- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
(Dollar amounts in thousands)
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, annualized:
Interest and fees on loans (GAAP) $ 50,089 $ 47,647 $ 46,864
Exclude SBA PPP loans interest and fees (8,739) (5,810) —
Exclude incremental accretion on purchased loans (795) (944) (997)
Adjusted interest and fees on loans (non-GAAP) $ 40,555 $ 40,893 $ 45,867
Average loans receivable, net $ 4,540,962 $ 4,605,389 $ 3,719,128
Exclude average SBA PPP loans (822,460) (863,127) —
Adjusted average loans receivable, net (non-GAAP) $ 3,718,502 $ 3,742,262 $ 3,719,128
Loan yield, annualized (GAAP) 4.39 % 4.12 % 5.00 %
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, annualized (non-GAAP) 4.34 % 4.35 % 4.89 %

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. 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. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause or contribute to such differences include, but are not limited to: changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; 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 2021 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.

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollar amounts in thousands, except shares)

December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
Assets
Cash on hand and in banks $ 91,918 $ 89,039 $ 95,039
Interest earning deposits 651,404 487,203 133,529
Cash and cash equivalents 743,322 576,242 228,568
Investment securities available for sale, at fair value, net (amortized cost of $770,195, $802,391 and $939,160, respectively) 802,163 834,492 952,312
Loans held for sale 4,932 8,250 5,533
Loans receivable 4,468,647 4,666,730 3,767,879
Allowance for credit losses on loans (70,185) (73,340) (36,171)
Loans receivable, net 4,398,462 4,593,390 3,731,708
Other real estate owned — — 841
Premises and equipment, net 85,452 89,831 87,888
Federal Home Loan Bank stock, at cost 6,661 6,661 6,377
Bank owned life insurance 107,580 108,311 103,616
Accrued interest receivable 19,418 18,888 14,446
Prepaid expenses and other assets 193,301 194,938 164,129
Other intangible assets, net 13,088 13,947 16,613
Goodwill 240,939 240,939 240,939
Total assets $ 6,615,318 $ 6,685,889 $ 5,552,970
Liabilities and Stockholders' Equity
Deposits $ 5,597,990 $ 5,689,048 $ 4,582,676
Junior subordinated debentures 20,887 20,814 20,595
Securities sold under agreement to repurchase 35,683 29,043 20,169
Accrued expenses and other liabilities 140,319 143,855 120,219
Total liabilities 5,794,879 5,882,760 4,743,659
Common stock 571,021 570,170 586,459
Retained earnings 224,400 207,751 212,474
Accumulated other comprehensive income, net 25,018 25,208 10,378
Total stockholders' equity 820,439 803,129 809,311
Total liabilities and stockholders' equity $ 6,615,318 $ 6,685,889 $ 5,552,970
Shares outstanding 35,912,243 35,910,300 36,618,729

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollar amounts in thousands, except per share amounts)

Three Months Ended Year Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019 December 31,<br>2020 December 31,<br>2019
Interest income:
Interest and fees on loans $ 50,089 $ 47,647 $ 46,864 $ 192,417 $ 189,515
Taxable interest on investment securities 3,473 3,865 5,585 17,541 23,045
Nontaxable interest on investment securities 973 953 755 3,659 3,396
Interest on interest earning deposits 142 98 739 703 1,894
Total interest income 54,677 52,563 53,943 214,320 217,850
Interest expense:
Deposits 1,993 2,639 4,479 12,265 16,349
Junior subordinated debentures 191 196 313 890 1,339
Other borrowings 38 50 36 168 480
Total interest expense 2,222 2,885 4,828 13,323 18,168
Net interest income 52,455 49,678 49,115 200,997 199,682
(Reversal of) provision for credit losses (3,133) 2,730 1,558 36,106 4,311
Net interest income after (reversal of) provision for credit losses 55,588 46,948 47,557 164,891 195,371
Noninterest income:
Service charges and other fees 4,213 4,039 4,603 16,228 18,712
Gain on sale of investment securities, net 55 40 1 1,518 330
Gain on sale of loans, net 1,919 1,443 811 5,044 2,424
Interest rate swap fees 230 396 919 1,691 1,232
Bank owned life insurance income 1,880 909 572 4,319 2,160
Other income 2,988 1,383 2,105 8,429 7,604
Total noninterest income 11,285 8,210 9,011 37,229 32,462
Noninterest expense:
Compensation and employee benefits 22,257 21,416 21,939 88,106 87,568
Occupancy and equipment 5,728 5,676 5,513 22,664 21,690
Data processing 2,350 2,363 2,361 9,396 8,976
Marketing 783 755 461 3,100 3,481
Professional services 1,289 1,086 1,280 5,921 5,192
State/municipal business and use taxes 1,128 964 777 3,754 3,754
Federal deposit insurance premium 703 848 5 1,789 725
Other real estate owned, net — — 12 (145) 352
Amortization of intangible assets 859 860 975 3,525 4,001
Other expense 3,465 2,077 2,674 10,830 11,049
Total noninterest expense 38,562 36,045 35,997 148,940 146,788
Income before income taxes 28,311 19,113 20,571 53,180 81,045
Income tax expense 4,429 2,477 3,445 6,610 13,488
Net income $ 23,882 $ 16,636 $ 17,126 $ 46,570 $ 67,557
Basic earnings per share $ 0.66 $ 0.46 $ 0.47 $ 1.29 $ 1.84
Diluted earnings per share $ 0.66 $ 0.46 $ 0.47 $ 1.29 $ 1.83
Dividends declared per share $ 0.20 $ 0.20 $ 0.29 $ 0.80 $ 0.84
Average number of basic shares outstanding 35,910,430 35,908,845 36,597,048 36,014,445 36,758,230
Average number of diluted shares outstanding 36,188,579 35,988,734 36,824,470 36,170,066 36,985,766

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollar amounts in thousands, except per share amounts)

Nonperforming Assets and Credit Quality Metrics:

Three Months Ended Year Ended
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019 December 31,<br>2020 December 31,<br>2019
Other Real Estate Owned:
Balance, beginning of period $ — $ — $ 841 $ 841 $ 1,983
Additions from transfer of loan — — — 270 —
Proceeds from dispositions — — — (1,290) (864)
Gain (loss) on sales, net — — — 179 (227)
Valuation adjustments — — — — (51)
Balance, end of period $ — $ — $ 841 $ — $ 841
Three Months Ended Year Ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019 December 31,<br>2020 December 31,<br>2019
Allowance for Credit Losses on Loans:
Balance, beginning of period $ 73,340 $ 71,501 $ 36,518 $ 36,171 $ 35,042
Impact of CECL adoption — — — 1,822 —
Adjusted balance, beginning of period 73,340 71,501 36,518 37,993 35,042
(Reversal of) provision for credit losses on loans (2,792) 2,320 1,558 35,433 4,311
Charge-offs:
Commercial business (198) (507) (1,509) (3,751) (2,692)
Residential real estate — — (15) — (60)
Real estate construction and land development (417) — (133) (417) (133)
Consumer (313) (335) (451) (1,454) (2,104)
Total charge-offs (928) (842) (2,108) (5,622) (4,989)
Recoveries:
Commercial business 310 80 55 1,530 657
Residential real estate — — — 3 —
Real estate construction and land development 118 139 9 278 637
Consumer 137 142 139 570 513
Total recoveries 565 361 203 2,381 1,807
Net charge-offs (363) (481) (1,905) (3,241) (3,182)
Balance, end of period $ 70,185 $ 73,340 $ 36,171 $ 70,185 $ 36,171
Net charge-offs on loans to average loans, annualized 0.03 % 0.04 % 0.20 % 0.07 % 0.09 %
Three Months Ended Year Ended
--- --- --- --- --- --- --- --- --- --- ---
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019 December 31,<br>2020 December 31,<br>2019
Allowance for Credit Losses on Unfunded Commitments:
Balance, beginning of period $ 5,022 $ 4,612 $ 306 $ 306 $ 306
Impact of CECL adoption — — — 3,702 —
Adjusted balance, beginning of period 5,022 4,612 306 4,008 306
(Reversal of) provision for credit losses on unfunded commitments (341) 410 — 673 —
Balance, end of period $ 4,681 $ 5,022 $ 306 $ 4,681 $ 306
December 31,<br>2020 September 30,<br>2020 December 31,<br>2019
--- --- --- --- --- --- --- --- --- ---
Nonperforming Assets:
Nonaccrual loans (1):
Commercial business $ 56,786 $ 50,930 $ 44,320
Residential real estate 184 157 19
Real estate construction and land development 1,022 1,439 —
Consumer 100 78 186
Total nonaccrual loans 58,092 52,604 44,525
Other real estate owned — — 841
Nonperforming assets $ 58,092 $ 52,604 $ 45,366
Restructured performing loans $ 30,227 $ 19,615 $ 14,469
Accruing loans past due 90 days or more — — —
Potential problem loans (2) 204,987 159,764 87,788
ACL on loans to:
Loans receivable 1.57 % 1.57 % 0.96 %
Loans receivable, excluding SBA PPP loans (3) 1.87 % 1.93 % 0.96 %
Nonaccrual loans 120.82 % 139.42 % 81.24 %
Nonperforming loans to loans receivable 1.30 % 1.13 % 1.18 %
Nonperforming assets to total assets 0.88 % 0.79 % 0.82 %

(1)At December 31, 2020, September 30, 2020 and December 31, 2019, $43.1 million, $20.5 million and $26.3 million of nonaccrual loans were also considered TDR loans, respectively.

(2)Potential problem loans are loans classified as Special Mention or worse that are not classified as a TDR or nonaccrual loan and are not individually evaluated for credit loss, but which management is closely monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms.

(3) See Non-GAAP Financial Measures section herein.

Average Balances, Yields, and Rates Paid:

Three Months Ended
December 31, 2020 September 30, 2020 December 31, 2019
Average<br>Balance Interest<br>Earned/<br>Paid Average<br>Yield/<br>Rate (1) Average<br>Balance Interest<br>Earned/<br>Paid Average<br>Yield/<br>Rate (1) Average<br>Balance Interest<br>Earned/<br>Paid Average<br>Yield/<br>Rate (1)
Interest Earning Assets:
Loans receivable, net (2) (3) $ 4,540,962 $ 50,089 4.39 % $ 4,605,389 $ 47,647 4.12 % $ 3,719,128 $ 46,864 5.00 %
Taxable securities 649,287 3,473 2.13 697,128 3,865 2.21 826,541 5,585 2.68
Nontaxable securities (3) 164,025 973 2.36 163,070 953 2.32 123,177 755 2.43
Interest earning deposits 559,491 142 0.10 389,653 98 0.10 180,862 739 1.62
Total interest earning assets 5,913,765 54,677 3.68 % 5,855,240 52,563 3.57 % 4,849,708 53,943 4.41 %
Noninterest earning assets 761,712 765,740 707,390
Total assets $ 6,675,477 $ 6,620,980 $ 5,557,098
Interest Bearing Liabilities:
Certificates of deposit $ 421,633 $ 720 0.68 % $ 466,920 $ 1,133 0.97 % $ 526,247 $ 2,027 1.53 %
Savings accounts 532,301 106 0.08 514,072 117 0.09 508,924 572 0.45
Interest bearing demand and money market accounts 2,680,084 1,167 0.17 2,639,511 1,389 0.21 2,101,001 1,880 0.36
Total interest bearing deposits 3,634,018 1,993 0.22 3,620,503 2,639 0.29 3,136,172 4,479 0.57
Junior subordinated debentures 20,840 191 3.65 20,766 196 3.75 20,548 313 6.04
Securities sold under agreement to repurchase 35,278 38 0.43 32,856 50 0.61 22,360 36 0.64
Total interest bearing liabilities 3,690,136 2,222 0.24 % 3,674,125 2,885 0.31 % 3,179,080 4,828 0.60 %
Noninterest demand deposits 2,034,425 1,998,772 1,462,683
Other noninterest bearing liabilities 141,917 148,345 108,467
Stockholders’ equity 808,999 799,738 806,868
Total liabilities and stockholders’ equity $ 6,675,477 $ 6,620,980 $ 5,557,098
Net interest income $ 52,455 $ 49,678 $ 49,115
Net interest spread 3.44 % 3.26 % 3.81 %
Net interest margin 3.53 % 3.38 % 4.02 %
Average interest earning assets to average interest bearing liabilities 160.26 % 159.36 % 152.55 %

(1)Annualized.

(2)The average loan balances presented in the table are net of the ACL on loans and include loans held for sale. Nonaccrual loans have been included in the table as loans carrying a zero yield.

(3)Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

Year Ended
December 31, 2020 December 31, 2019
Average<br>Balance Interest<br>Earned/<br>Paid Average<br><br>Yield/<br><br>Rate (1) Average<br>Balance Interest<br>Earned/<br>Paid Average<br><br>Yield/<br><br>Rate (1)
Interest Earning Assets:
Loans receivable, net (2) (3) $ 4,335,564 $ 192,417 4.44 % $ 3,668,665 $ 189,515 5.17 %
Taxable securities 731,378 17,541 2.40 827,822 23,045 2.78
Nontaxable securities (3) 152,447 3,659 2.40 135,245 3,396 2.51
Interest earning deposits 315,847 703 0.22 98,153 1,894 1.93
Total interest earning assets 5,535,236 214,320 3.87 % 4,729,885 217,850 4.61 %
Noninterest earning assets 758,386 681,193
Total assets $ 6,293,622 $ 5,411,078
Interest Bearing Liabilities:
Certificates of deposit $ 482,316 $ 5,675 1.18 % $ 512,732 $ 7,021 1.37 %
Savings accounts 489,471 526 0.11 506,073 2,633 0.52
Interest bearing demand and money market accounts 2,491,477 6,064 0.24 2,052,573 6,695 0.33
Total interest bearing deposits 3,463,264 12,265 0.35 3,071,378 16,349 0.53
Junior subordinated debentures 20,730 890 4.29 20,438 1,339 6.55
Securities sold under agreement to repurchase 27,805 160 0.58 28,457 175 0.61
FHLB advances and other borrowings 1,466 8 0.55 11,899 305 2.56
Total interest bearing liabilities 3,513,265 13,323 0.38 % 3,132,172 18,168 0.58 %
Noninterest demand deposits 1,835,165 1,389,721
Other noninterest bearing liabilities 139,612 99,683
Stockholders’ equity 805,580 789,502
Total liabilities and stockholders’ equity $ 6,293,622 $ 5,411,078
Net interest income $ 200,997 $ 199,682
Net interest spread 3.49 % 4.03 %
Net interest margin 3.63 % 4.22 %
Average interest earning assets to average interest bearing liabilities 157.55 % 151.01 %

(1)Annualized.

(2)The average loan balances presented in the table are net of the ACL on loans and include loans held for sale. Nonaccrual loans have been included in the table as loans carrying a zero yield.

(3)Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollar amounts in thousands, except per share amounts)

Three Months Ended
December 31,<br>2020 September 30,<br>2020 June 30,<br>2020 March 31,<br>2020 December 31,<br>2019
Earnings:
Net interest income $ 52,455 $ 49,678 $ 50,313 $ 48,551 $ 49,115
(Reversal of) provision for credit losses (3,133) 2,730 28,563 7,946 1,558
Noninterest income 11,285 8,210 8,248 9,486 9,011
Noninterest expense 38,562 36,045 37,073 37,260 35,997
Net income (loss) 23,882 16,636 (6,139) 12,191 17,126
Basic earnings (losses) per share $ 0.66 $ 0.46 $ (0.17) $ 0.34 $ 0.47
Diluted earnings (losses) per share $ 0.66 $ 0.46 $ (0.17) $ 0.34 $ 0.47
Average Balances:
Loans receivable, net (1) $ 4,540,962 $ 4,605,389 $ 4,442,108 $ 3,748,573 $ 3,719,128
Investment securities 813,312 860,198 924,987 937,839 949,718
Total interest earning assets 5,913,765 5,855,240 5,552,494 4,811,769 4,849,708
Total assets 6,675,477 6,620,980 6,310,024 5,560,212 5,557,098
Total interest bearing deposits 3,634,018 3,620,503 3,430,542 3,164,389 3,136,172
Total noninterest demand deposits 2,034,425 1,998,772 1,883,227 1,420,247 1,462,683
Stockholders' equity 808,999 799,738 807,539 806,071 806,868
Financial Ratios:
Return on average assets (2) 1.42 % 1.00 % (0.39) % 0.88 % 1.22 %
Return on average common equity (2) 11.74 8.28 (3.06) 6.08 8.42
Return on average tangible common equity (2) (3) 17.62 12.66 (3.96) 9.46 12.94
Efficiency ratio 60.50 62.27 63.31 64.20 61.93
Noninterest expense to average total assets (2) 2.30 2.17 2.36 2.70 2.57
Net interest margin (2) 3.53 3.38 3.64 4.06 4.02
Net interest spread (2) 3.44 3.26 3.48 3.87 3.81

(1) The average loan balances presented in the table are net of the ACL on loans and include loans held for sale.

(2) Annualized

(3) See Non-GAAP Financial Measures section herein.

As of Period End or for the Three Months Ended
December 31,<br>2020 September 30,<br>2020 June 30,<br>2020 March 31,<br>2020 December 31,<br>2019
Select Balance Sheet:
Total assets $ 6,615,318 $ 6,685,889 $ 6,562,359 $ 5,587,300 $ 5,552,970
Loans receivable, net 4,398,462 4,593,390 4,594,832 3,804,836 3,731,708
Investment securities 802,163 834,492 879,927 961,092 952,312
Deposits 5,597,990 5,689,048 5,567,733 4,617,948 4,582,676
Noninterest demand deposits 1,980,531 1,989,247 1,999,754 1,415,177 1,446,502
Stockholders' equity 820,439 803,129 793,652 798,438 809,311
Financial Measures:
Book value per share $ 22.85 $ 22.36 $ 22.10 $ 22.25 $ 22.10
Tangible book value per share (1) 15.77 15.27 14.98 15.10 15.07
Stockholders' equity to total assets 12.4 % 12.0 % 12.1 % 14.3 % 14.6 %
Tangible common equity to tangible assets (1) 8.9 8.5 8.5 10.2 10.4
Tangible common equity to tangible assets, excluding SBA PPP loans (1) 10.0 9.9 9.9 10.2 10.4
Loans to deposits ratio 79.8 82.0 83.8 83.4 82.2
Credit Quality Metrics:
ACL on loans to:
Loans receivable 1.57 % 1.57 % 1.53 % 1.23 % 0.96 %
Loans receivable, excluding SBA PPP loans (1) 1.87 1.93 1.88 1.23 0.96
Nonperforming loans 120.82 139.42 212.62 139.16 81.24
Nonperforming loans to loans receivable 1.30 1.13 0.72 0.89 1.18
Nonperforming assets to total assets 0.88 0.79 0.51 0.63 0.82
Net charge-offs on loans to average loans receivable 0.03 0.04 0.18 0.04 0.20
Criticized Loans by Credit Quality Rating:
Special mention $ 164,388 $ 104,781 $ 60,498 $ 61,968 $ 48,859
Substandard 126,163 123,570 90,552 89,510 93,413
Doubtful/Loss — — — — 524
Other Metrics:
Number of banking offices 61 62 62 62 62
Average number of full-time equivalent employees 848 857 877 877 889
Deposits per branch $ 91,770 $ 91,759 $ 89,802 $ 74,483 $ 73,914
Average assets per full-time equivalent employee 7,873 7,727 7,195 6,342 6,253

(1) See Non-GAAP Financial Measures section herein.

20

investorpresentationq412

1 Investor Presentation Q4 2020

2 Forward – Looking Statement 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 differences 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 the housing and commercial real estate markets, 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 general 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; • 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 • other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including from the COVID-19 pandemic, 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.

3 Company Overview - All dollars in thousands unless otherwise noted, except per share amounts.

4 Overview Overview NASDAQ Symbol HFWA Stock Price(1) $25.62 Market Capitalization(1) $919.5 million Institutional Ownership(1) 81.2% Headquarters Olympia, WA # of Branches(2) 53 Year Established 1927 Q4 2020 Financial Highlights Assets $6.62 billion Deposits $5.60 billion Loans receivable $4.47 billion Net Income $23.9 million Pre-tax, Pre-provision Income(3) $25.2 million Net Interest Margin 3.53% Efficiency Ratio 60.50% Tier 1 Leverage Ratio 9.0% Total Risk Based Capital Ratio 14.0% Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map. (1) Market information as of January 22, 2021. (2) As of January 28, 2021; incorporates eight branch consolidations completed in January 2021. (3) Non-GAAP financial measure. Refer to Appendix for calculation. HFWA Branch

5(1) Evaluated on a case-by-case basis. COVID-19 Response Employees  Activated our Business Continuity Plan  Approximately 60% of employees have remote capabilities; 37% are fully remote Facilities  Nearly all branch lobbies remain closed; operate by drive-thru or by appointment  Practice recommended CDC guidelines for social distancing and disinfecting Customers  Loan modification programs  Early CD withdrawal, overdraft and other fee waivers(1)  SBA Paycheck Protection Program and other government sponsored programs Loan Portfolio  Consistent monitoring/analysis to identify potential at-risk/higher-risk industries  Daily monitoring of credit draws  Commercial and consumer underwriting changes  Concentration loan-type limit changes  Increased Special Asset Group staffing levels  Discontinued indirect consumer lending business  On-going discussions with customers about credit needs Capital and Liquidity  Suspended repurchase program on March 18, 2020 (reinstituted effective February 1, 2021)  No change to cash dividends, at this time  Well-capitalized across all regulatory capital ratios  Ample balance sheet liquidity, including cash, securities and borrowing capacity

6 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 2012 with 5 acquisitions  Target Metrics = IRR of >15% with earnbacks < 3 years Allocate capital to organically grow our core banking business  Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets  Disciplined approach to concentration risk and active portfolio management Improve operational efficiencies and rationalize branch network  Achieving increased efficiencies with operational scale, internal focus on improving processes and technology solutions  Closed/Consolidated 31 branches since beginning of 2010(1) Generate stable profitability and risk adjusted returns  1.25% return on average assets in 2019 and 0.74% in 2020 (2020 impacted by $36.1 million provision for credit losses)  Total annual shareholder return(2) of 7.7% over the past 5 years vs. KBW Regional Bank Index annual total return of 5.7% Maintain conservative underwriting standards and actively manage the portfolio  Long track record of strong underwriting with conservative risk profile  Disciplined approach to concentration risk Focus on core deposits is key to franchise value over the long term  35.4% noninterest demand deposits to total deposits  Noninterest demand deposit CAGR of 21% since 2015  0.14% cost of total deposits(3); top 20% in the country among publicly traded banks(4) Proactive capital management  History of increasing regular dividends and utilizing special dividends to manage capital  Approved stock repurchase plan  Strong capital ratios: Tier 1 Leverage Ratio = 9.0%; Total Risk Based Capital Ratio = 14.0% (1) As of January 28, 2021; incorporates eight branch consolidations completed in January 2021. (2) Total shareholder return for the period 12/31/2015 - 12/31/2020. (3) For the quarter ended December 31, 2020. (4) Per S&P Global Market Intelligence for Q3'2020 and includes banks nationwide with shares on NASDAQ or NYSE and total assets less than $100 billion.

7 Technology Strategy Objective: Invest in technology to enable Community Banking at Scale Transform Products Robust, integrated and application programming interface- (“API”) driven digital solutions  Implemented “Heritage Direct,” a full suite of upgraded treasury management tools for commercial customers, including online banking, ACH, wires, positive pay, remote deposit capture and merchant services  Deploying a state of the art omni-channel new account opening solution  Developing “widgets” to support exceptional service delivery and tailored user experience in consumer and commercial online banking platforms Empower Employees Train and equip with digital tools and know-how  Completing deployment of a bank-wide business process management (“BPM”) solution to enable real-time transparency into every major process across the company  Continued development of bespoke customer relationship management (“CRM”) solution on Bank proprietary application framework, delivering unprecedented software integration and efficiency  Training and enabling employees to run data-centric, instrumented processes  Deep, API-based integration between Bank application framework and core vendor platforms to enable “first-contact” resolution Engage Customers Leverage data to offer personalized service  BPM and CRM integration to enable automation and transparency of “customer journeys” through all key banking activities  Omni-channel account opening, robust online/mobile offerings, chatbot and other call center upgrades, and first contact resolution tools to enable the Bank to deliver banking where and when the customer needs us Optimize Operations Integrate systems, automate & instrument processes  Further enhancements to Proprietary Commercial Loan Origination System to automate lending processes  Develop an integrated Treasury Management origination system to automate sales, onboarding and on-going support processes  API-based integrations with vendor solutions to enable sustainable process automation

8 Map obtained from S&P Global Market Intelligence. (1) Bureau of Economic Analysis; 2020 Gross Domestic Product by County Report; rank among metros with GDP greater than $30 billion as of December 9, 2020. (2) www.cnbc.com as of January 27, 2020. (3) www.wallethub.com as of January 22, 2020. (4) Per S&P Global Market Intelligence, Claritas as of January 21, 2021. Strong and Diverse Economic Landscape Companies Headquartered in Pacific Northwest • The Seattle and Portland MSAs are thriving local economies with major Fortune 500 companies which include Alaska Air, Amazon, Costco, Expedia, Microsoft, Nike, Nordstrom, Paccar, Starbucks and Weyerhaeuser • Seattle MSA became ranked the 10th largest regional economy in the U.S. by Gross Domestic Product and grew 5.1% during 2019 to nearly $383 billion(1) • King County, WA ranks as the fastest growing county in the U.S.(1) • Washington County and Multnomah County are the fastest growing counties in the state of Oregon(1) • Washington and Oregon rank #5 and #7 for best economy in CNBC’s list of “America’s Top States for Business in 2019”(2) • Seattle has the best market for STEM professionals (science, technology, education and math)(3) • High levels of migration into Portland – population is expected to grow 5.6% by 2026(4) • Median household income for the cities of Seattle and Bellevue are 50% and 98% higher, as compared to the nationwide average(4) • Household income in the Portland MSA is 24% higher than the nationwide average, and is expected to grow by 13.8% through 2026(4)

9 Seattle-Portland Metro Markets • The Seattle-Tacoma-Bellevue and Portland-Vancouver-Hillsboro MSAs are among the fastest growing metro markets nationwide. • Annual population growth for both Seattle and Portland MSAs have exceeded the average growth rate for the top 15 largest MSAs since 2015 and are expected to grow at a CAGR of 1.3% and 1.1%, respectively, for the five year period from 2022 through 2026. • Median household income for the Seattle MSA has consistently exceeded the average for the top 15 largest MSAs and the nationwide average, while the Portland MSA has consistently exceeded the nationwide average. Annual Population Growth(1) Median Household Income(1) (1) Per S&P Global Market Intelligence, Claritas.

10 Seattle MSA Funds Under Management Funds Under Management(1) = Loans(2) + Deposits • 23 branches in the Seattle MSA market; five branches consolidated into existing branches during October 2020 and January 2021. • SBA PPP loans also had a significant impact on deposit growth. Map obtained from S&P Global Market Intelligence. (1) Prior period information includes branches that were closed or consolidated prior to January 28, 2021. (2) Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium. MSA Market Map HFWA Branch

11 Portland MSA Funds Under Management Funds Under Management(1) = Loans(2) + Deposits Map obtained from S&P Global Market Intelligence. (1) Prior period information includes branches that were closed or consolidated prior to January 28, 2021. (2) Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium. MSA Market Map • 7 branches in the Portland MSA market; two branches consolidated into existing branches during January 2021. • SBA PPP loans at also had a significant impact on deposit growth. HFWA Branch

12 Future Growth and Opportunities Pacific Northwest Banking Landscape(1) Map obtained from S&P Global Market Intelligence. (1) Certain locations of bank headquarters overlap on the map; one target in Alaska not shown. (2) Target financial information as of the most recent quarter publicly available. Expected Consolidation and Future Opportunities • Significant number of banks remaining in HFWA footprint, further consolidation is expected. – 8 banks(2) between $150 and $500 million in assets – 10 banks(2) between $500 million and $1.0 billion in assets – 9 banks(2) between $1.0 billion and $2.5 billion in assets • HFWA positioned to be the acquiror of choice in the Pacific Northwest. • Financial parameters include 15% IRR and earnback of < 3 years. • Preferred targets to have commercial relationship banking focus with efficient branch network along the I-5 corridor. Target bank headquarters

13 Historical Growth – Organic and Acquisitive • In addition to organic growth, HFWA has completed 5 whole bank mergers and 2 FDIC-assisted transactions since 2008. Completed 2 FDIC deals - Pierce Commercial Bank and Cowlitz Bank, acquiring $211M and $345M in assets, including goodwill, respectively. Acquired Valley Community Bancshares, Inc. and Northwest Commercial Bank with $254M and $65M in assets, including goodwill, respectively. Merger with Washington Banking Company with $1.7B in assets, including goodwill, respectively. Completed acquisition of Puget Sound Bancorp and Premier Commercial Bancorp with $639M and $440M in assets, including goodwill, respectively.

14 Deposit Market Share(1) Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2020 Rank Institution (State) Deposits in Market (in thousands) Market Share Rank Institution (State) Deposits in Market (in thousands) Market Share Rank Institution (State) Deposits in Market (in thousands) Market Share 1 Bank of America Corporation (NC) $32,880,496 20.36% 1 Bank of America Corporation (NC) $34,290,015 19.44% 1 Bank of America Corporation (NC) $53,875,256 22.05% 2 U.S. Bancorp (MN) 18,200,191 11.27% 2 U.S. Bancorp (MN) 24,912,264 14.12% 2 U.S. Bancorp (MN) 39,363,813 16.11% 3 Washington Mutual Inc. (WA) 18,044,059 11.17% 3 Wells Fargo & Co. (CA) 22,985,222 13.03% 3 Wells Fargo & Co. (CA) 37,357,367 15.29% 4 Wells Fargo & Co. (CA) 13,983,430 8.66% 4 JPMorgan Chase & Co. (NY) 15,638,062 8.87% 4 JPMorgan Chase & Co. (NY) 33,918,863 13.88% 5 KeyCorp (OH) 11,282,327 6.99% 5 KeyCorp (OH) 11,805,664 6.69% 5 KeyCorp (OH) 20,339,619 8.33% 6 Sterling Financial Corp. (WA) 6,314,532 3.91% 6 Washington Federal Inc. (WA) 6,216,841 3.52% 6 Umpqua Holdings Corp. (OR) 16,007,112 6.55% 7 Washington Federal Inc. (WA) 4,697,167 2.91% 7 Columbia Banking System Inc. (WA) 5,840,021 3.31% 7 Columbia Banking System Inc. (WA) 12,461,960 5.10% 8 Umpqua Holdings Corp. (OR) 3,683,451 2.28% 8 Umpqua Holdings Corp. (OR) 5,499,385 3.12% 8 Banner Corp. (WA) 9,267,305 3.79% 9 Banner Corp. (WA) 3,511,650 2.17% 9 Sterling Financial Corp. (WA) 5,203,136 2.95% 9 Washington Federal Inc. (WA) 8,458,020 3.46% 10 Frontier Financial Corp. (WA) 3,303,562 2.05% 10 Mitsubishi UFJ Financial Group Inc. 3,474,540 1.97% 10 W.T.B. Financial Corp. (WA) 6,521,602 2.67% 11 Columbia Banking System Inc. (WA) 2,401,217 1.49% 11 Banner Corp. (WA) 3,255,301 1.85% 11 Heritage Financial Corp. (WA) 5,587,287 2.29% 12 W.T.B. Financial Corp. (WA) 2,355,857 1.46% 12 W.T.B. Financial Corp. (WA) 3,180,411 1.80% 12 HomeStreet Inc. (WA) 3,935,194 1.61% 13 West Coast Bancorp (OR) 2,082,385 1.29% 13 HomeStreet Inc. (WA) 1,612,978 0.91% 13 BNP Paribas 3,236,708 1.32% 14 HomeStreet Inc. (WA) 1,268,125 0.79% 14 SKBHC Holdings LLC (WA) 1,550,759 0.88% 14 Mitsubishi UFJ Financial 2,986,808 1.22% 15 Cascade Bancorp (OR) 1,142,435 0.71% 15 Washington Banking Co. (WA) 1,410,804 0.80% 15 First Interstate BancSystem (MT) 2,920,782 1.20% 16 AmericanWest Bancorp. (WA) 1,100,332 0.68% 16 Yakima Federal S&L Assoc. (WA) 1,402,048 0.79% 16 HSBC Holdings 2,094,816 0.86% 17 Horizon Financial Corp. (WA) 1,097,107 0.68% 17 BNP Paribas SA 1,314,955 0.75% 17 Peoples Bancorp (WA) 2,042,495 0.84% 18 Yakima Federal S&L Assoc. (WA) 1,094,393 0.68% 18 Heritage Financial Corp. (WA) 1,227,045 0.70% 18 FS Bancorp Inc. (WA) 1,618,253 0.66% 19 BNP Paribas SA 1,001,691 0.62% 19 Peoples Bancorp (WA) 1,119,301 0.63% 19 Cashmere Valley Bank (WA) 1,585,447 0.65% 20 Cascade Financial Corp. (WA) 993,356 0.62% 20 Cashmere Valley Bank (WA) 1,094,353 0.62% 20 East West Bancorp Inc. (CA) 1,498,607 0.61% 21 City Bank (WA) 955,179 0.59% 21 Pacific Continental Corp. (OR) 1,074,590 0.61% 21 First Repub Bank (CA) 1,399,364 0.57% 22 Columbia Bancorp (OR) 939,992 0.58% 22 Opus Bank (CA) 968,148 0.55% 22 Yakima FS&LA (WA) 1,376,884 0.56% 23 Venture Financial Group Inc. (WA) 916,882 0.57% 23 East West Bancorp Inc. (CA) 924,708 0.52% 23 Zions Bancorp. NA (UT) 1,342,480 0.55% 24 First Financial Northwest Inc. (WA) 867,502 0.54% 24 Olympic Bancorp Inc. (WA) 807,112 0.46% 24 Timberland Bancorp Inc. (WA) 1,319,048 0.54% 25 Peoples Bancorp (WA) 845,949 0.52% 25 HSBC Holdings PLC 801,732 0.45% 25 Coastal Financial Corp. (WA) 1,312,246 0.54% 26 Cashmere Valley Financial Corp. (WA) 841,611 0.52% 26 Cascade Bancorp (OR) 799,971 0.45% 26 Olympic Bancorp Inc. (WA) 1,214,210 0.50% 27 Heritage Financial Corp. (WA) 802,020 0.50% 27 Zions Bancorp. NA (UT) 774,168 0.44% 27 First Northwest Bancorp (WA) 1,181,630 0.48% 28 Liberty Financial Group Inc. (OR) 778,222 0.48% 28 Skagit Bancorp Inc. (WA) 666,659 0.38% 28 Riverview Bancorp Inc. (WA) 1,167,155 0.48% 29 Washington Banking Co. (WA) 733,643 0.45% 29 Riverview Bancorp Inc. (WA) 660,249 0.37% 29 First Financial Northwest Inc (WA) 1,147,742 0.47% 30 First Indep. Investment Group Inc. (WA) 684,404 0.42% 30 First Financial Northwest Inc. (WA) 642,130 0.36% 30 Pacific Premier Bancorp (CA) 1,008,108 0.41% 31 Pacific Continental Corp. (OR) 676,993 0.42% 31 First Fed. S&L Assoc. of Port Angeles (WA) 598,820 0.34% 31 Pacific Financial Corp. (WA) 995,159 0.41% 32 PremierWest Bancorp (OR) 664,006 0.41% 32 Timberland Bancorp Inc. (WA) 596,187 0.34% 32 Citizens Bancorp (OR) 798,620 0.33% 33 Riverview Bancorp Inc. (WA) 630,220 0.39% 33 Pacific Financial Corp. (WA) 591,430 0.34% 33 Glacier Bancorp Inc. (MT) 732,045 0.30% 34 Olympic Bancorp Inc. (WA) 626,828 0.39% 34 Baker Boyer Bancorp (WA) 467,717 0.27% 34 Sound Financial Bancorp Inc. (WA) 698,527 0.29% 35 Zions Bancorp. NA (UT) 571,565 0.35% 35 Olympia Federal S&L Association (WA) 464,913 0.26% 35 First Citizens BancShares Inc. (NC) 649,359 0.27% 36 Whitman Bancorp. Inc. (WA) 527,546 0.33% 36 Home Federal Bancorp Inc. (ID) 451,386 0.26% 36 Olympia FS&LA (WA) 616,144 0.25% 37 Washington First Financial Group Inc. (WA) 514,572 0.32% 37 First Citizens BancShares Inc. (NC) 415,562 0.24% 37 Seattle Bank (WA) 606,235 0.25% 38 First Fed. S&L Assoc. of Port Angeles (WA) 495,891 0.31% 38 Citizens Bancorp (OR) 404,324 0.23% 38 Cathay General Bancorp (CA) 600,144 0.25% 39 Skagit Bancorp Inc. (WA) 486,490 0.30% 39 Coastal Financial Corp. (WA) 349,343 0.20% 39 Baker Boyer Bancorp (WA) 598,602 0.25% 40 Timberland Bancorp Inc. (WA) 480,261 0.30% 40 Evergreen Federal Bank (OR) 335,918 0.19% 40 Summit Bank (OR) 587,947 0.24% Total For Institutions In Market $161,492,273 Total For Institutions In Market $176,371,225 Total For Institutions In Market $294,671,611 Out of 148 Institutions Out of 120 Institutions Out of 85 Institutions (1) Per S&P Global Market Intelligence as of June 30 for the year indicated.

15 Financial Update - All dollars in thousands unless otherwise noted, except per share amounts.

16 Financial Update – Q4 2020 • Net income was $23.9 million, or $0.66 per diluted share, for the quarter ended December 31, 2020, compared to $16.6 million, or $0.46 per diluted share, for the linked-quarter ended September 30, 2020 and $17.1 million, or $0.47 per diluted share, for the quarter ended December 31, 2019. • Diluted earnings per share were $1.29 for the year ended December 31, 2020 compared to $1.83 for the year ended December 31, 2019. • Completed the consolidation of nine branches on January 22, 2021, a decrease of 15% in total branches. • Efficiency ratio was 60.50% for the quarter ended December 31, 2020 compared to 62.27% for the linked-quarter ended September 30, 2020 and 61.93% for the quarter ended December 31, 2019. • Noninterest expense to average total assets, annualized, was 2.30% for the quarter ended December 31, 2020 compared to 2.17% for the linked-quarter ended September 30, 2020 and 2.57% for the quarter ended December 31, 2019. • Reversal of provision for credit losses was $3.1 million for the quarter ended December 31, 2020 compared to a provision for credit losses of $2.7 million for the linked-quarter ended September 30, 2020. Provision for credit losses was $36.1 million for the year ended December 31, 2020 compared to $4.3 million for the year ended December 31, 2019. • Capital remains strong with Tier 1 leverage ratio of 9.0%(1) at December 31, 2020 compared to 8.8% at September 30, 2020 and total risk-based capital ratio of 14.0%(1) at December 31, 2020 compared to 13.4% at September 30, 2020. • Heritage ranked #1 in Washington on Newsweek’s America’s Best Banks List. • Heritage declared a regular cash dividend of $0.20 per common share on January 27, 2021. (1) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.

17 Loan Balances and Loan Yields Loan Portfolio Loan Portfolio Composition • $957.2 million (25% of portfolio, excluding SBA PPP loans) of floating and adjustable loans were at their respective interest rate floor as of December 31, 2020. • Consumer loans decreased to 7.3% of the loan portfolio from 7.7% at September 30, 2020 due primarily to cessation of indirect auto lending business earlier in 2020. • SBA PPP loans decreased to 16.0% of the loan portfolio from 18.6% at September 30, 2020 due to SBA loan forgiveness payments commencing during Q4. (1) lncludes Loans held for sale. (2) Loan yields include the average balance of Loans receivable, net and Loans held for sale. (3) Non-GAAP financial measure. Refer to Appendix for calculation. Loan Portfolio Repricing Schedule (excluding SBA PPP loans)

18 Commercial Business Loan Exposure Commercial Business Loans by Industry(1) Exposure Industry Amount WARR at 12/31/19 WARR at 9/30/20 WARR at 12/31/20 Real Estate and Rental and Leasing $1,393,140 4.39 4.48 4.51 Health Care and Social Assistance 303,138 4.26 4.51 4.56 Accommodation and Food Services 201,399 4.60 5.96 6.16 Retail Trade 174,763 4.62 4.62 4.63 Construction 154,835 4.58 4.59 4.66 Manufacturing 122,703 5.01 5.07 5.21 Other Services (except Public Administration) 119,725 4.80 4.86 4.88 All Other Industries 530,381 4.71 4.75 4.70 Total $3,000,084 4.52 4.68 4.72 CRE Loans only by Collateral Type (1) Categorized by NAICS code. Excludes SBA PPP loans WARR = Weighted average risk rating. Collateral Type Amount WARR at 12/31/19 WARR at 9/30/20 WARR at 12/31/20 Office $507,601 4.32 4.48 4.51 Industrial 308,852 4.27 4.36 4.45 Retail Store/Shopping Center 264,040 4.57 4.76 4.79 Multi-Family 175,427 4.44 4.42 4.38 Mixed Use Property 160,667 4.49 4.72 4.77 Motel/Hotel 152,190 4.46 5.81 6.09 Single Purpose 128,670 4.54 4.66 4.82 Warehouse 114,178 4.38 4.41 4.62 Mini-Storage 108,908 4.20 4.22 4.20 Recreational/School 69,193 4.81 5.02 5.14 Other 277,261 4.55 4.59 4.62 Total $2,266,987 4.43 4.62 4.69

19 SBA PPP Loans by Size at December 31, 2020 Funded SBA PPP Loans(1) by Industry(2)Management Commentary SBA PPP Loans Balance % of SBA PPP Count Remaining Deferred Fee Less than $50,000 $37,391 5.2 % 1,787 $1,075 $50,000 to $100,000 52,555 7.3 769 1,679 $100,000 to $350,000 169,475 23.7 988 5,611 $350,000 to $2,000,000 305,642 42.8 443 6,057 Greater than $2,000,000 150,058 21.0 49 970 Total $715,121 100.0 % 4,036 $15,392 (1) Reflects the funded balance of all SBA PPP loans originated by the Bank over the duration of the SBA's PPP. (2) Categorized by NAICS code. • Over 4,600 loans totaling $897.4 million was funded over the duration of the first round of the SBA's PPP. • Approximately 21% of loans were issued to new customers. • Earn 1.0% interest plus a portion of an origination fee over the duration of the respective loans. • Received SBA PPP principal and interest forgiveness payments of $159.2 million during the quarter ended December 31, 2020. • Recognized an increase of $3.0 million of deferred fee during the quarter ended December 31, 2020 compared to the linked- quarter due substantially to SBA loan forgiveness payments. • Commenced second round of SBA PPP subsequent to December 31, 2020.

20 COVID-19 Related Modifications Management Commentary (1) Categorized by NAICS code. Active Payment Deferral Modifications(1) Balance Count Real Estate and Rental and Leasing $22,167 11 Hotels (except Casino Hotels) and Motels 13,954 4 Restaurants 10,696 22 Parking Lots and Garages 6,569 1 Arts, Entertainment, and Recreation 1,324 4 All Other 15,177 133 Total $69,887 175 % of Active Payment Deferral Modification Status by Risk Rating • Bank completed modifications on 2,041 loans with a March 31, 2020 balance of $666.6 million through December 31, 2020, including 26% completing more than one modification. • Approximately 88% of COVID Modifications with payment deferral no longer on payment deferral status at December 31, 2020. • Active payment deferral modification statistics: ◦ Represents 1.9% of loan portfolio, excluding SBA PPP loans. ◦ Includes 23 loans totaling $22.9 million on nonaccrual status and 52 loans totaling $16.4 million classified as performing TDR. ◦ 79% were in their second or third modification, generally 90-day deferral for each modification. ◦ $57.1 million secured by real estate. ◦ $22.2 million Real Estate and Rental and Leasing includes $11.2 million of retail/shopping facilities, $3.5 million of warehouses and $2.4 million of office space.

21 Higher Risk Industries(1) at December 31, 2020 (1) Categorized by NAICS code and excluding SBA PPP loans. Real Estate and Rental and Leasing • Balance of $125.3 million, or 3.3% of loan portfolio • Unfunded commitment $8.3 million • $85.3 million were granted a COVID-19 modification and $14.0 million are in active payment deferral status • 100% of balance is secured by real estate • Weighted average risk rating of 6.53 (compared to 6.27 at September 30, 2020) • Average loan size of $3.2 million; top 3 loans total $43.6 million • $3.6 million classified as nonaccrual and TDR • All loans are current • $53.5 million classified as potential problem loans Restaurants • Balance of $73.1 million, or 1.9% of loan portfolio • Unfunded commitment $6.8 million • $35.3 million were granted a COVID-19 modification and $10.7 million are in active payment deferral status • 60% of balance is secured by real estate • Weighted average risk rating of 6.16 (compared to 6.07 at September 30, 2020) • Average loan size of $317,000; top 3 loans total $8.8 million • $6.9 million classified as nonaccrual; $1.9 million classified as performing TDR • All loans are current except one loan with an amortized cost of $184,000 is in the 30-89 delinquent bucket • $11.0 million classified as potential problem loans Hotels • Balance of $1.56 billion, or 41.5% of loan portfolio • Unfunded commitment $168.8 million • $222.8 million were granted a COVID-19 modification and $22.2 million are in active payment deferral status • 98% of balance is secured by real estate • Weighted average risk rating of 4.54 (compared to 4.51 at September 30, 2020) • Average loan size of $1.0 million; top 3 loans total $51.6 million • $8.4 million classified as nonaccrual; $15.5 million classified as performing TDR • Largest collateral type is offices (including office condos), securing $348.0 million of balance • Retail store/shopping centers collateralize $180.3 million of balance

22 Credit Quality Management Commentary (1) Potential problem loans ("PPL") are risk rated Special Mention or worse, not classified as a TDR or nonaccrual loan and are not individually evaluated for credit loss, but which management is closely monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms. (2) Balances not meaningful to disclose in some periods. (3) Non-GAAP financial measure. Refer to Appendix for calculation. (4) Nonfperforming assets ("NPA") includes loans classified as nonaccrual and other real estate owned. • PPL increases primarily attributed to downgrades related to COVID-19. • PPLs with Covid Modifications totaled $109.4 million at December 31, 2020; $3.7 million of which was in active payment deferral modification status at December 31, 2020. • $14.9 million of previously classified PPL with COVID Modifications transferred to TDR status during Q4 2020. • Nonperforming assets at Q4 2020 include only nonaccrual loans. • Additions to nonaccrual status in Q4 2020 include $2.2 million of loans previously modified under the CARES Act and showed continued decline in credit quality. • Management actively monitoring credit of loans in payment deferral status; increased Special Asset Department to facilitate consistent messaging. Nonperforming Assets and Allowance for Credit Losses Potential Problem Loans(1)

23 Allowance for Credit Losses Management Commentary • Overall, the decrease in ACL is due to decrease in loan balances and slight improvement in economic outlook in the Q4 2020 Macroeconomic forecast. • Q4 2020 net charge-off includes one partial charge-off of a commercial and multifamily real estate construction and land development loan of $417,000 as a result of cost overruns and delays in construction • ACL for unfunded commitments decreased due primarily to increase in commercial and industrial utilization rates, offset by slight decrease in estimated loss rates. • No ACL on investment securities available for sale. Allowance for Credit Losses on Loans Allowance for Credit Losses on Unfunded Commitments

24 Deposit Composition Deposits Deposit Composition • 92.9% of deposits are non-maturity. • Decrease in total deposits primarily relating to a decrease in a public depositor relationship during the quarter Q4. • No significant outflow of deposits from borrowers that received SBA PPP loans. Deposit Balances and Cost of Total Deposits

25 Net Interest Margin Total Asset Composition • 79.8% Loan to deposit ratio. • 23.3% of assets are cash and cash equivalents and investment securities. • Increase in margin due primarily to recognition of the remaining net deferred fees on SBA forgiven SBA PPP loans for Q4 2020. (1) Non-GAAP financial measure. Refer to Appendix for calculation. Net Interest Margin Average Interest Earning Assets Composition

26 Profitability Trends ROATCE(1) Noninterest Expense/Avg. Assets ROAA Net Income and Pre-tax, Pre-provision Income (1) Non-GAAP financial measure. Refer to Appendix for calculation.

27 (1) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports. (2) Non-GAAP financial measure. Refer to Appendix for calculation. (3) Represents FDIC minimum and well-capitalized ratio thresholds for banks. The minimum capital ratio requirement for Tier 1 Leverage and Total Risk Based Capital is 4.0% and 8.0%, respectively. (4) Limited to 15% of total deposits in accordance with Bank's Asset and Liability Management policy. Strong Capital and Sources of Liquidity Tier 1 Leverage Ratio(1) Total Risk Based Capital(1) Tangible Common Equity/Tangible Assets Primary and Secondary Sources of Liquidity Source December 31, 2020 Cash and Cash Equivalents $743,322 Unencumbered Securities 607,273 FHLB and FRB Borrowing Availability 1,045,943 Fed Fund Lines 215,000 Brokered CD Capacity(4) 839,699 Total $3,451,237

28 Shareholder Return - All dollars in thousands unless otherwise noted, except per share amounts.

29 Total Shareholder Return Stock Summary(1) Ticker HFWA Exchange NASDAQ Stock Price $25.62 Market Cap. (in millions) $919.5 Dividend Yield (Regular Div. Only) 3.12% Average Daily Volume (3 month) Avg. Daily Volume (Shares) 135,794 Avg. Daily Volume ($000s) $3,479 52-Week High and Low Price 52-Week High (1/23/2020) 27.94 52-Week Low (5/14/2020) 14.65 Per Share Tg. Book Value Per Share $15.27 EPS - 2021E $1.31 EPS - 2022E $1.30 Number of Research Analysts 6 Valuation Ratios Price / Tg. Book Value 167.8% Price / 2021E EPS 19.6x Price / 2022E EPS 19.7x Dividends Per Share Declared(2) Total Return – Last 12 Months(1) (1) As of January 22, 2021. (2) As of January 27, 2021.

30 Appendix - Reconciliations of Non-GAAP Financial Measures - All dollars in thousands unless otherwise noted, except per share amounts.

31 Non-GAAP Financial Measures 2017 YTD 2018 YTD 2019 YTD 2020 YTD 2020 Q1 Q2 Q3 Q4 Pre-tax, Pre-provision Income: Net income (loss) (GAAP) $41,791 $53,057 $67,557 $46,570 $12,191 $(6,139) $16,636 $23,882 Exclude income tax (benefit) expense 18,356 11,238 13,488 6,610 640 (936) 2,477 4,429 Exclude provision for (reversal of provision for) credit losses 4,220 5,129 4,311 36,106 7,946 28,563 2,730 (3,133) Pre-tax, pre-provision income (non-GAAP) $64,367 $69,424 $85,356 $89,286 $20,777 $21,488 $21,843 $25,178 Loan Yield, excluding SBA PPP Loans, Annualized: Interest and fees on loans (GAAP) $129,213 $175,466 $189,515 $192,417 $46,277 $48,404 $47,647 $50,089 Exclude impact on loan yield from SBA PPP loan interest and fees — — — (19,472) — (4,923) (5,810) (8,739) Adjusted interest and fees on loans (non-GAAP) $129,213 $175,466 $189,515 $172,945 $46,277 $43,481 41,837 $41,350 Average loans receivable, net (GAAP) $2,703,934 $3,414,424 $3,668,665 $4,335,564 $3,748,573 $4,442,108 $4,605,389 $4,540,962 Exclude average SBA PPP loans — — — (589,635) — (667,390) (863,127) (822,460) Adjusted average loans receivable, net (non-GAAP) $2,703,934 $3,414,424 $3,668,665 $3,745,929 $3,748,573 $3,774,718 $3,742,262 $3,718,502 Loan yield, annualized (GAAP) 4.78 % 5.14 % 5.17 % 4.44 % 4.97 % 4.38 % 4.12 % 4.39 % Loan yield, excluding SBA PPP loans, annualized (non-GAAP) 4.78 % 5.14 % 5.17 % 4.60 % 4.97 % 4.63 % 4.45 % 4.42 % ACL on Loans to Loans Receivable, excluding SBA PPP Loans: Allowance for credit losses on loans $32,086 $35,042 $36,171 $70,185 $47,540 $71,501 $73,340 $70,185 Loans receivable (GAAP) $2,849,071 $3,654,160 $3,767,879 $4,468,647 $3,852,376 $4,666,333 $4,666,730 $4,468,647 Exclude SBA PPP loans — — — (715,121) — (856,490) (867,782) (715,121) Loans receivable, excluding SBA PPP (non-GAAP) $2,849,071 $3,654,160 $3,767,879 $3,753,526 $3,852,376 $3,809,843 $3,798,948 $3,753,526 ACL on loans to Loans receivable (GAAP) 1.13 % 0.96 % 0.96 % 1.57 % 1.23 % 1.53 % 1.57 % 1.57 % ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP) 1.13 % 0.96 % 0.96 % 1.87 % 1.23 % 1.88 % 1.93 % 1.87 %

32 Non-GAAP Financial Measures 2017 YTD 2018 YTD 2019 YTD 2020 YTD 2020 Q1 Q2 Q3 Q4 Net Interest Margin, excluding Incremental Accretion on Purchased Loans, Annualized: Net interest income (GAAP) $139,363 $186,993 $199,682 $200,997 $48,551 $50,313 $49,678 $52,455 Exclude incremental accretion on purchased loans (6,320) (7,964) (4,876) (3,446) (1,012) (696) (944) (795) Adjusted net interest income (non-GAAP) $133,043 $179,029 $194,806 $197,551 $47,539 $49,617 $48,734 $51,660 Average total interest earning assets, net $3,547,786 $4,358,643 $4,729,885 $5,535,236 $4,811,769 $5,552,494 $5,855,240 $5,913,765 Net interest margin, annualized (GAAP) 3.93 % 4.29 % 4.22 % 3.63 % 4.06 % 3.64 % 3.38 % 3.53 % Net interest margin, excluding incremental accretion on purchased loans, annualized (non-GAAP) 3.75 % 4.11 % 4.12 % 3.57 % 3.98 % 3.59 % 3.32 % 3.48 % Return on Average Tangible Common Equity: Net Income (GAAP) $41,791 $53,057 $67,557 $46,570 $12,191 $(6,139) $16,636 $23,882 Add amortization of intangible assets 1,286 3,819 4,001 3,525 903 903 860 859 Exclude tax effect of adjustment (450) (802) (840) (740) (190) (190) (181) (180) Tangible net income (non-GAAP) $42,627 $56,074 $70,718 $49,355 $12,904 $(5,426) $17,315 $24,561 Average stockholders' equity (GAAP) $499,776 $687,094 $789,502 $805,580 $806,071 $807,539 $799,738 $808,999 Exclude average intangible assets (125,774) (230,282) (259,667) (255,898) (257,234) (256,338) (255,453) (254,587) Average tangible common stockholders' equity (non- GAAP) $374,002 $456,812 $529,835 $549,682 $548,837 $551,201 $544,285 $554,412 Return on average equity, annualized (GAAP) 8.36 % 7.72 % 8.56 % 5.78 % 6.08 % (3.06)% 8.28 % 11.74 % Return on average tangible common equity, annualized (non-GAAP) 11.40 % 12.28 % 13.35 % 8.98 % 9.49 % (3.96)% 12.66 % 17.62 %

33 Non-GAAP Financial Measures 2017 2018 2019 2020 Q1 Q2 Q3 Q4 Potential Problem Loans to Loans Receivable, excluding SBA PPP Loans: Potential problem loans $83,543 $101,320 $87,888 $102,167 $100,554 $159,764 $204,987 Loans receivable (GAAP) $2,849,071 $3,654,160 $3,767,879 $3,852,376 $4,666,333 $4,666,730 $4,468,647 Exclude SBA PPP loans — — — — (856,490) (857,782) (715,121) Loans receivable, excluding SBA PPP (non-GAAP) $2,849,071 $3,654,160 $3,767,879 $3,852,376 $3,809,843 $3,808,948 $3,753,526 Potential problem loans to loans receivable (GAAP) 2.93 % 2.77 % 2.33 % 2.65 % 2.15 % 3.42 % 4.59 % Potential problem loans to loans receivable, excluding SBA PPP (non-GAAP) 2.93 % 2.77 % 2.33 % 2.65 % 2.64 % 4.21 % 5.46 % Tangible Common Equity to Tangible Assets: Total stockholders' equity (GAAP) $508,305 $760,723 $809,311 $798,438 $793,652 $803,129 $820,439 Exclude intangible assets (125,117) (261,553) (257,552) (256,649) (255,746) (254,886) (254,027) Tangible common equity (non-GAAP) $383,188 $499,170 $551,759 $541,789 $537,906 $548,243 $566,412 Total assets (GAAP) $4,113,270 $5,316,927 $5,552,970 $5,587,300 $6,562,359 $6,685,889 $6,615,318 Exclude intangible assets (125,117) (261,553) (257,552) (256,649) (255,746) (254,886) (254,027) Tangible assets (non-GAAP) $3,988,153 $5,055,374 $5,295,418 $5,330,651 $6,306,613 $6,431,003 $6,361,291 Total assets (GAAP) $4,113,270 $5,316,927 $5,552,970 $5,587,300 $6,562,359 $6,685,889 $6,615,318 Exclude intangible assets (125,117) (261,553) (257,552) (256,649) (255,746) (254,886) (254,027) Exclude SBA PPP loans — — — — (856,490) (867,782) (715,121) Tangible assets, excluding SBA PPP loans (non- GAAP) $3,988,153 $5,055,374 $5,295,418 $5,330,651 $5,450,123 $5,563,221 $5,646,170 Stockholders' equity to total assets (GAAP) 12.4 % 14.3 % 14.6 % 14.3 % 12.1 % 12.0 % 12.4 % Tangible common equity to tangible assets (non- GAAP) 9.6 9.9 10.4 10.2 8.5 8.5 8.9 Tangible common equity to tangible assets, excluding SBA PPP loans (non-GAAP) 9.6 % 9.9 % 10.4 % 10.2 % 9.9 % 9.9 % 10.0 %

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