Financial Data and Key Metrics Changes - The company reported a net interest income increase of $9.2 million or 18.5%, primarily due to a higher net interest margin which rose 53 basis points to 3.57% for Q3 [9][10] - Non-interest expense increased by $3.4 million to $39.1 million, driven by higher compensation expenses due to inflationary pressures and new hires [14][56] - The total equity capital ratio decreased to 7.6% from 7.9% at the end of Q2, impacted by declines in the fair value of the investment portfolio [13] Business Line Data and Key Metrics Changes - Loan balances increased by $127 million or 3.3%, with yields on the loan portfolio at 4.51%, up 21 basis points from Q2 [10] - Investments increased by $326 million due to additional purchases of securities, raising the yield on the investment portfolio to 2.63% from 2.15% [11] - Consumer loan production, primarily home equity lines of credit, was $30 million, down from $43 million in the previous quarter [31] Market Data and Key Metrics Changes - The commercial loan pipeline ended Q3 at $604 million, up from $537 million in Q2, indicating a positive trend despite variability in new opportunities [28] - Non-accrual loans decreased by $4.2 million or 40%, totaling $6.2 million, representing 1.16% of total loans [18][19] - Criticized loans declined by approximately 9% or $16 million during Q3, now totaling $151 million or 3.8% of total loans [20] Company Strategy and Development Direction - The company is focused on maintaining a conservative risk profile while managing credit quality, which has shown improvement despite potential recessionary pressures [6][25] - There is an ongoing emphasis on technology strategy to enhance operational efficiency and customer experience, with plans for potential acquisitions in the future [37][45] - The company aims to continue refining branch operations while maintaining a strong presence in key markets [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong liquidity position and capital levels, which provide a solid foundation to navigate challenges and seize opportunities [38] - The company anticipates continued loan production in Q4 similar to Q3, while managing expenses amid inflationary pressures [36] - Management remains cautious about the broader macroeconomic environment but believes the diversified loan portfolio positions the company well for future performance [25] Other Important Information - The company recognized a provision for credit losses of $1.9 million during Q3, primarily due to increases in loan balances [15] - The average interest rate for new commercial loans was 4.87%, reflecting a competitive market environment [32] Q&A Session Summary Question: Update on Heritage One development and efficiency improvements - Management provided an update on the technology development timeline, with the commercial loan origination system expected to be completed by March 2023 [42][45] Question: Thoughts on branch consolidations - Management indicated that while branch consolidations occurred last year, future consolidations will be more limited, focusing on refining existing operations [46] Question: M&A conversations and appetite - Management noted ongoing conversations regarding M&A but indicated no immediate opportunities, emphasizing readiness to pursue suitable options when they arise [48] Question: Expense outlook and inflationary pressures - Management expects quarterly expenses to stabilize in the $39 million to $40 million range, with recent hiring efforts contributing to this outlook [56] Question: Regional economic climate in the Northwest - Management highlighted a diverse economic landscape in the Northwest, with positive growth trends observed in loans and deposits [60][62]

Financial Performance - Net income for the three months ended June 30, 2022, was $18.6 million, a decrease of 43.2% from $32.7 million in the same period in 2021[118] - For the six months ended June 30, 2022, net income was $38.3 million, down 33.9% from $58.0 million in the comparable period in 2021[119] - Income before income taxes for the three months ended June 30, 2022, was $22,561 thousand, a decrease of $17,592 thousand or 43.8% compared to $40,153 thousand in 2021[144] - The effective income tax rate for the three months ended June 30, 2022, was 17.6%, down from 18.6% in the prior year, reflecting a decrease in estimated annual pre-tax income[144] - Income tax expense for the six months ended June 30, 2022, was $7,559 thousand, a decrease of $4,994 thousand or 39.8% compared to $12,553 thousand in 2021[145] Interest Income and Assets - Total interest earning assets for the three months ended June 30, 2022, were $6.61 billion, with net interest income of $50.05 million, resulting in a net interest margin of 3.04%[120] - Net interest income for the six months ended June 30, 2022, decreased by $9,511 thousand, representing an 8.9% decline compared to the same period in 2021[128] - The average yield on loans receivable, net, was 4.30% for the three months ended June 30, 2022, down from 4.62% in the same period in 2021[120] - The average loan yield (GAAP) decreased to 4.36% for the six months ended June 30, 2022, down from 4.55% in the prior year[131] - Total interest earning assets increased to $6,653,543 thousand, with a net interest margin of 2.94% for the six months ended June 30, 2022, compared to 3.47% in 2021[127] Loans and Credit Losses - Loans receivable, net, decreased by $590.82 million to $3.81 billion, with interest earned on loans dropping by $9.86 million, a 19.4% decline[122] - The provision for credit losses on loans significantly impacted net income, reflecting management's assessment of the loan portfolio's collectability[113] - The reversal of provision for credit losses on loans for the three months ended June 30, 2022, was $(649) thousand, a decrease of $12,172 thousand or 94.9% compared to the prior year[133] - The reversal of provision for credit losses on loans for the six months ended June 30, 2022, was $(3,171) thousand, a decrease of $15,785 thousand or 83.3% compared to the prior year[136] - The Allowance for Credit Losses (ACL) on loans decreased to $39,696,000 as of June 30, 2022, down from $51,562,000 in 2021, representing a change of $(11,866,000) or (23.0)%[151] Noninterest Income and Expenses - Noninterest income primarily consists of service charges and fees, contributing to the overall financial performance[114] - Total noninterest income for the three months ended June 30, 2022, was $7,016 thousand, a decrease of $1,281 thousand or 15.4% from $8,297 thousand in the same period of 2021[138] - Service charges and other fees increased by $324 thousand or 15.7% to $2,391 thousand for the three months ended June 30, 2022, compared to $2,067 thousand in 2021[138] - Total noninterest expense for the three months ended June 30, 2022, was $35,707 thousand, a decrease of $689 thousand or 1.9% from $36,396 thousand in the prior year[141] Assets and Liabilities - The total assets increased to $7,410,066 thousand, up by $469,879 thousand from the previous year[127] - Total assets decreased by $115,945, or 1.6%, from December 31, 2021, to June 30, 2022, primarily due to a $729,237 decrease in cash and cash equivalents, reflecting a 42.3% decline[146] - Investment securities available for sale increased by $293,253, or 32.8%, from December 31, 2021, to June 30, 2022, totaling $1,187,588[148] - Total investment securities increased by $525,513, or 41.1%, from December 31, 2021, to June 30, 2022, reaching $1,803,241[148] - Deposits decreased by $64,100, or 1.0%, from December 31, 2021, to June 30, 2022, totaling $6,330,190[147] Capital and Equity - The Company declared a quarterly dividend of $0.21 per common share on July 20, 2022, payable on August 17, 2022[156] - Common equity Tier 1 capital to risk-weighted assets was 13.2% as of June 30, 2022, down from 13.5% at the end of 2021[159] - The Company's stockholders' equity to assets ratio was 11.0% as of June 30, 2022, down from 11.5% at the end of 2021, primarily due to a decrease in Accumulated Other Comprehensive Income (AOCI) of $71.2 million[155] Operational Changes - The company reduced its branch count from 61 to 49 during the year ended December 31, 2021, consolidating eight branches in the first quarter of 2021[117] - The company continues to focus on balancing physical locations with digital banking channels, driven by increased customer usage of online services[117] Risk Management - No material change in interest rate risk exposure since the 2021 Annual Form 10-K[168] - The company does not maintain a trading account for any class of financial instrument[168] - The company does not engage in hedging activities or purchase high-risk derivative instruments[168] - The company is not subject to foreign currency exchange rate risk[168] - The company is not subject to commodity price risk[168]

Financial Data and Key Metrics Changes - The annualized loan growth excluding PPP was 9.5% for the quarter, supported by lower payoffs and higher line utilization [4] - Net interest income decreased by almost $1 million, primarily due to a $1.8 million decrease in income from PPP loans [12] - Total deposits grew by $97 million or 1.5% in Q1, with a year-over-year increase of $458 million or 7.6% [16] - Non-interest income decreased by $1.3 million from the prior quarter, mainly due to a $2.7 million gain on sale of property recognized in Q4 [19] - The overhead ratio improved to 1.95% compared to 2.06% in the prior quarter [19] Business Line Data and Key Metrics Changes - Commercial lending closed $225 million in new loan commitments, down from $329 million in the previous quarter [34] - Consumer loan production was $22 million during the quarter, down from $23 million in the previous quarter [38] - The mortgage department closed $37 million of new loans in Q1, compared to $45 million in Q4 [41] Market Data and Key Metrics Changes - The average interest rate for new commercial loans was 3.54%, down 17 basis points from the previous quarter [39] - The average interest rate for all new loans was 3.39%, down 11 basis points from the previous quarter [39] Company Strategy and Development Direction - The company is focused on maintaining a moderate risk profile and has not loosened underwriting standards despite competitive pressures [32] - There is an intention to pursue acquisitions in the three-state region when suitable opportunities arise [46] - The company continues to refine its technology strategy to support efficient operations and enhance customer experience [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about organic growth due to the economic vitality of the Pacific Northwest [8] - The company anticipates high single-digit loan growth for the year [43] - Management acknowledged inflationary pressures on compensation expenses and technology investments [20] Other Important Information - The allowance for credit losses (ACL) settled at 1.07% excluding PPP, compared to the pre-pandemic ACL of 1.01% [7] - Non-accrual loans declined by $7.2 million or 30% from year-end 2021 levels [23] - The company experienced net recoveries of $494,000 for the quarter [30] Q&A Session Summary Question: Is there a figure for net interest margin excluding PPP, interest recoveries, and accretion? - The margin would be about 260 basis points, unchanged from the prior quarter [51] Question: What is the buyback appetite compared to last quarter? - The company does not have a significant appetite for buybacks, maintaining a steady share count [52] Question: Is the expense outlook of $37 million to $38 million still appropriate? - Yes, that range is still appropriate, but expenses are expected to increase due to inflationary pressures [56][58] Question: Will the company continue to purchase residential mortgages? - The company may utilize this strategy as a lever to manage excess cash, depending on the environment [59][61] Question: What are the expectations for deposit rates with upcoming rate hikes? - The company expects a lag in deposit rate increases, with a potential need to raise rates later in the year [62] Question: What is the near-term margin outlook? - The company is optimistic about margin increases in the coming quarters, anticipating a bottoming out in Q1 [68][69] Question: What is the status of M&A discussions? - There has been no significant change in the M&A environment, and discussions are ongoing but not imminent [74] Question: Are there increased conversations regarding digitalization opportunities? - Opportunities are still expected to emerge later in the year as the market stabilizes [76]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-29480 HERITAGE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) (State or ot ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-29480 HERITAGE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Was ...

Table of Contents WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-29480 UNITED STATES SECURITIES AND EXCHANGE COMMISSION (I.R.S. Employer Identification No.) HERITAGE FINANCIAL CORPORATION (Exact name of registrant ...

Heritage Financial Corporation (NASDAQ:HFWA) Q2 2021 Earnings Conference Call July 22, 2021 2:00 PM ET Company Participants Jeff Deuel - President and CEO Don Hinson - Chief Financial Officer Tony Chalfant - Chief Credit Officer Bryan McDonald - Executive VP & COO Conference Call Participants Jackie Bohlen - KBW Matthew Clark - Piper Sandler Tim Coffey - Janney Jeff Rulis - D.A. Davidson Andrew Terrell - Stephens Operator Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Ea ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |---------|----------------------|-----------------------|-------|-------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Heritage CORPORATION | Financial | | | | | | | | | Q2 2021 | | INVESTOR PRESENTATION | | | | | | | | FORWARD LOOKING STATEMENTS The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ult ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-29480 HERITAGE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) (State ...

Financial Data and Key Metrics Changes - The company reported an EPS of $0.70 for Q1 2021, with an ROI of 1.51% [6][4] - Net interest income saw a slight decrease due to fewer days in Q1 compared to Q4, but average interest-earning assets increased by $129 million [13][14] - The cost of total deposits decreased to 12 basis points in Q1, marking an all-time low for the bank [17][18] - Non-interest income decreased significantly due to substantial gains recognized in Q4 2020 [19] Business Line Data and Key Metrics Changes - Commercial lending closed $200 million in new loan commitments, up from $140 million in the previous quarter [31] - Consumer production was $16 million for Q1, down from $18 million in Q4 2020 [33] - The mortgage department closed $43 million of new loans in Q1, compared to $57 million in Q4 2020 [35] Market Data and Key Metrics Changes - The commercial loan pipeline ended Q1 at $540 million, up 31% from the previous quarter [31] - Non-accrual loans declined by $5.2 million or 9%, totaling $52.9 million or 1.15% of total loans [27] - Potential problem loans decreased by $18.5 million during Q1, or 10.2% [28] Company Strategy and Development Direction - The company is focusing on traditional outreach to customers and prospects as branch lobbies reopen and PPP loans move into the forgiveness phase [7][8] - Technology initiatives such as the CL-360 loan origination automation and Heritage 360 CRM platform are being prioritized to enhance efficiency and customer experience [9][10] - The company aims to leverage cash through growing the loan portfolio and increasing investments [52][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improved credit metrics due to the vaccine rollout and economic recovery [43][44] - The company anticipates high single-digit growth in loans excluding PPP for the second half of the year [102] - Management remains cautious about the high-risk categories in the loan portfolio and is monitoring economic conditions closely [80][82] Other Important Information - The company experienced a reversal of provision for credit losses amounting to $7.2 million, attributed to an improved economic outlook [23] - Non-interest expense decreased due to cost savings from branch consolidations completed in January [20] Q&A Session Summary Question: Core NII outlook and margin growth strategy - Management plans to leverage cash through growing the loan portfolio and investments, but anticipates continued pressure on margins [51][54] Question: Increase in loan pipeline by region - Significant increases in loan requests are observed across various regions, particularly in King County and Portland [56][58] Question: Update on M&A discussions - The Pacific Northwest remains quiet regarding M&A activity, with expectations for potential movement in the second half of the year [60][70] Question: Impact of branch closures on customer retention and expenses - Customer retention has been positive post-branch closures, with significant cost savings already realized [65][68] Question: Reserve ratio and future recapture expectations - Management is cautiously optimistic about the reserve ratio but will monitor high-risk portfolio segments closely [79][82] Question: Expectations for deposit growth - While strong deposit growth was seen due to PPP, management expects some runoff as businesses begin to utilize funds [90][91]