Slide 1: Investor Presentation Q2 2023
INVESTOR PRESENTATION Q2 2023
Slide 2: Forward-looking statements
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “
Slide 3: Company Overview
COMPANY OVERVIEW
Slide 4: Overview
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $18.36 Market capitalization $643.7 million Institutional ownership 79.5% Headquarters Olympia, WA # of branches 51 Year established 1927 Q2 2023 Financial Highlights Assets $7.12 billion Deposits $5.60 billion Loans receivable $4.25 billion Net inc
Slide 5: Company Strategy
5 COMPANY STRATEGY Allocate capital to organically grow our core banking business Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets as well as other key markets in and adjacent to our current footprint includes our recent branch openings
Slide 6: Technology Strategy
6 TECHNOLOGY STRATEGY Objective: Invest in technologies that enable Community Banking @ Scale HeritageONE Technology convergence & omni- channel experiences Ÿ Cutting-edge, proprietary ecosystem providing Heritage the ability to develop custom business applications and systems integrations Ÿ Results
Slide 7: HeritageONE
7 HeritageONE Proprietary technology ecosystem for converging product and service solutions to enable Community Banking @ Scale TECHNOLOGY INNOVATION Build Our proprietary HeritageONE platform provides an API-based framework and set of tools for selective in-house development of applications and int
Slide 8: Environmental, Social and Governance ("ESG") Practices
8 ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") PRACTICES We are committed to environmental and sustainability efforts, our human capital, our customers and strengthening the communities and markets in which we operate. Environment and Sustainability Ÿ Have a Green Team Committee focused on sustainab
Slide 9: Strong and Diverse Economic Landscape
9 4.0% 16.2% 3.9% 12.9% $88,444 2.1% 13.4% $73,503 Seattle MSA Portland MSA USA 2023-2028 Proj, population growth 2023-2028 Proj. median household income growth Median household income $106,526 $88,444 $73,503 STRONG AND DIVERSE ECONOMIC LANDSCAPE Market Highlights Major Employers in the Pacific Nor
Slide 10: Major MSA Funds Under Management
10 MAJOR MSA FUNDS UNDER MANAGEMENT Seattle MSA Funds Under Management = Loans + Deposits $2,941 $3,845 $4,020 $4,586 $5,212 $4,877 $4,715 $4,695 $1,415 $1,850 $1,909 $1,936 $1,981 $2,024 $2,069 $2,121 $1,526 $1,995 $2,111 $2,650 $3,231 $2,853 $2,646 $2,574 Total loans Deposits 2017 2018 2019 2020 2
Slide 11: Potential Growth Opportunities
11 POTENTIAL GROWTH OPPORTUNITIES – Map obtained from S&P Global Market Intelligence. – Certain locations of bank headquarters overlap on the map. – Financial information as of the most recent quarter publicly available. • Long-term goal to build a PNW regional commercial community bank; potential o
Slide 12: Historical Growth Organic and Acquisitive
12 Completed 2 FDIC deals Pierce Commercial Bank $211MM in assets Cowlitz Bank $345MM in assets Acquired Puget Sound Bancorp $639MM in assets Premier Commercial Bancorp $440MM in assets $1,015 $812 $1,369 $1,346 $1,340 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $6,980 $7,237 $7,115 $556
Slide 13: Growth Strategy
13 GROWTH STRATEGY YEAR ACTIVITY 2013 • Acquired Valley Community Bancshares - $254MM in assets • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets 2015 • Added a commercial banking team in Seattle, Washington • Formed our Capital Ma
Slide 14: Deposit Market Share
14 DEPOSIT MARKET SHARE Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2022 Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share 1 Bank of America Corpor
Slide 15: Financial Update
FINANCIAL UPDATE
Slide 16: Financial Update - Q2 2023
16 FINANCIAL UPDATE - Q2 2023 • Net income was $16.8 million, or $0.48 per diluted share, for the second quarter of 2023 compared to $20.5 million, or $0.58 per diluted share, for the first quarter of 2023. • Loans receivable increased $123.9 million, or 3.00% in the second quarter of 2023. • Capita
Slide 17: Average Loan Balances and Loan Yields
17 Average Loan Balances and Loan Yields $4,336 $4,181 $3,853 $4,093 $3,812 $3,860 $3,963 $4,039 $4,146 4.44% 4.54% 4.52% 5.13% 4.30% 4.51% 4.86% 5.07% 5.19% Average loans Loan yield 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Commercial & industrial 16.7% Owner- occupied CRE 22.
Slide 18: Loan Portfolio Composition
18 LOAN PORTFOLIO COMPOSITION $4,469 $3,816 $4,051 $4,127 $4,251 $733 $622 $692 $685 $708 $857 $931 $937 $949 $959 $1,410 $1,493 $1,587 $1,602 $1,644 $123 $165 $344 $364 $376 $306 $227 $294 $343 $386 $325 $232 $196 $183 $178$715 $146 Commercial & industrial Owner-occupied CRE Non-owner occupied CRE
Slide 19: Loan Production
19 New Commitments Originated $43 $29 $21 $15 $23 $61 $47 $66 $23 $27 $283 $277 $329 $228 $212 Consumer Residential Commercial Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 LOAN PRODUCTION – Q2 2022, Q3 2022, Q4 2022 residential commitments originated include $27.3 million, $29.0 million, and $40.5 millio
Slide 20: Line of Credit Utilization
20 Construction Commitments $486 $488 $686 $745 $781 $306 $227 $294 $343 $386 $180 $261 $392 $402 $395 Outstanding Balance Available Credit 2020 2021 2022 Q1 2023 Q2 2023 25.6% 25.2% 29.8% 30.0% 29.8% 63.0% 46.5% 42.9% 46.0% 49.4% 32.9% 31.4% 31.1% 30.0% 30.1% Utilization Rate - Consumer LOCs Utiliz
Slide 21: Changes in Loans Receivable
21 CHANGES IN LOANS RECEIVABLE $4,127 $134 $(52) $(18) $61 $4,251 Loans receivable at March 31, 2023 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at June 30, 2023 $4,051 $138 $(41) $(33) $13 $4,127 Loans receivable at December 31,2022 Loans originated Pre
Slide 22: Commercial Loan Exposure
22 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 12/31/2022 WARR at 3/31/2023 WARR at 6/30/2023 Real estate, rental and leasing $1,796 4.4 4.4 4.4 Health care and social assistance 327 4.6 4.5 4.5 Accommodation and food services 175 5.4 5.2 5.1 Retai
Slide 23: CRE Concentrations
23 CRE CONCENTRATIONS Total Commercial Real Estate Loans - As Defined by Regulatory Guidance 248% 255% 257% 259% 268% Total Commercial Real Estate Loans / Total RBC Supervisory Criteria Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 200% 225% 250% 275% 300% Construction, Land Development and Other Land Loa
Slide 24: CRE Office
24 CRE OFFICE CRE Office Loans - Core vs. Suburban Location Core 5.6% Suburban 94.4% CRE Office Loans by Size (Dollars in Thousands) Size Average Risk Rating Number of Loans Balance Average Balance >$10 Million 3.41 4 $ 67,294 16,823 $5-$10 Million 4.31 16 $ 103,412 6,463 $2-$5 Million 4.37 45 $ 135
Slide 25: Nonperforming Assets and Net Charge-offs
25 Net charge-offs (recoveries) on loans to average loans, annualized 0.07% 0.01% (0.03)% 0.00% (0.05)% (0.02)% 0.02% 0.00% 2020 2021 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Nonperforming Assets $58 $24 $6 $5 $5 Nonaccrual loans Nonperforming assets to total assets 2020 2021 2022 Q1 2023 Q2 202
Slide 26: Criticized Loans
26 CRITICIZED LOANS $291 $183 $135 $146 $143 $58 $24 $100 $89 $60 $44 $54 $132 $71 $69 $97 $85 Substandard - nonaccrual Substandard - accrual Special mention 2020 2021 2022 Q1 2023 Q2 2023 Criticized Loans by Collateral Type Commercial & industrial 29.8% Owner- occupied CRE 29.5% Non-owner occupied
Slide 27: Allowance for Credit Losses on Loans
27 1.57% 1.11% 1.06% 1.08% 1.09% $70,185 $42,361 $42,986 $44,469 $46,408 ACL on loans ($) ACL on loans / Loans (%) 2020 2021 2022 Q1 2023 Q2 2023 ACL on Loans - Q2 2023 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $44,469 $1,831 $90 $114 $(96) $46,408 ACL at March 31, 2023 Change in loan balance Cha
Slide 28: Deposits
28 $5,298 $6,090 $6,322 $5,752 $6,391 $6,374 $6,118 $5,849 $5,656 0.23% 0.10% 0.11% 0.46% 0.09% 0.09% 0.16% 0.31% 0.61% 0.14% 0.15% 0.25% 0.49% 0.92% 0.35% 0.16% 0.17% 0.70% Average deposits Cost of total deposits Cost of int-bearing deposits 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q
Slide 29: Deposit Composition
29 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $774 $260 $1,273 $1,246 $2,043 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 32% 60% 8% Consumer Commercial CDs Insured vs. Uninsured 33% 67% Insured Uninsured Estimated balances as of J
Slide 30: Investment Portfolio
30 Investment Balances and Investment Yield $802 $1,278 $2,098 $2,031 $1,803 $2,129 $2,098 $2,078 $2,031 $153 $757 $1,203 $427 $438 2.40% 2.13% 2.48% 2.97% 2.15% 2.63% 2.92% 2.96% 2.98% Portfolio yield New purchases 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 INVESTMENT PORTFOLIO
Slide 31: Investment Cashflows
31 $64 $57 $71 $45 $63 $94 $80 $75 $50 $47 $48 $42 $56 $31 $49 $81 $67 $63 $37 $35 $16 $15 $15 $14 $14 $13 $13 $12 $13 $12 Interest Principal Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 INVESTMENT CASHFLOWS Investment cashflows are estimated to be $646 million thr
Slide 32: Investment Portfolio - AFS
32 INVESTMENT PORTFOLIO - AFS AFS Investments by Type US government and agencies 5.0% Municipal securities 10.2% Residential CMO and MBS 32.2% Commercial CMO and MBS 50.8% Corporate obligations 0.3% Other asset- backed securities 1.5% *Available for sale ("AFS") investment securities balances and pe
Slide 33: Investment Portfolio - HTM
33 INVESTMENT PORTFOLIO - HTM HTM Investments by Type US government and agencies 18.2% Residential CMO and MBS 39.5% Commercial CMO and MBS 42.3% *Held to maturity ("HTM") investment securities balances and percentages are presented at fair value as of June 30, 2023 unless otherwise noted Strong Cre
Slide 34: Net Interest Margin
34 2.94% 0.88% 0.51% (0.02)% (0.33)% (0.25)% 3.73% YTD Q2 2022 Loans Investments Interest earning deposits Deposits Borrowings YTD Q2 2023 3.63% 3.23% 3.35% 3.72% 3.04% 3.57% 3.98% 3.91% 3.56% NIM 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 NET INTEREST MARGIN Change in Net Inter
Slide 35: Interest Earning Assets
35 Asset Repricing Composition at June 30, 2023 Floating rate (<3 month repricing) Adjustable rate (>3 month repricing) Fixed rate Total Interest earning deposits $ 35 $ — $ — $ 35 Total investment securities, at fair value 97 8 1,837 1,942 Loans receivable 907 1,075 2,270 4,252 Total interest earni
Slide 36: Profitability Trends
36 $46.6 $98.0 $81.9 $37.3 $89.3 $91.1 $98.0 $48.3 Net income (GAAP) PTPP income (non-GAAP) 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 $18.6 $21.0 $22.5 $20.5 $16.8 $21.4 $27.6 $29.3 $26.5 $21.8 PROFITABILITY TRENDS ROAE (GAAP) and ROATCE (non-GAAP) Noninterest Expense/Avg. Asse
Slide 37: Capital Ratios
37 Total Risk Based Capital 14% 14.8% 14.0% 14.1% 14.1% 10.0% 10.0% 10.0% 10.0% 10.0% 4.0% 4.8% 4.0% 4.1% 4.1% Well-capitalized Excess capital 2020 2021 2022 Q1 2023 Q2 2023 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appendix
Slide 38: Liquidity Position
38 LIQUIDITY POSITION (1) At fair value (2) Includes FHLB borrowing availability of $1.22 billion at June 30, 2023 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.26 billion. Liquidity position as of June 30, 2023: • Sufficient
Slide 39: Utilization of Bank Term Funding Program
39 Utilization of Bank Term Funding Program ("BTFP") As of June 30, 2023 Amount1 Rate2 Quarterly NII Impact3 Sources: Draw on Fed Bank Term Funding Program $ 450,000 4.72 % $ (5,295) Pay down FHLB Advances (450,000) 5.15 % 5,778 $ 483 (1) Dollars in thousands (2) Average rate paid during 2Q 2023 (3)
Slide 40: Shareholder Return
SHAREHOLDER RETURN
Slide 41: Total Shareholder Return
41 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $18.36 Market capitalization (in millions) $643.7 Dividend yield (regular dividend only) 4.79% Average Daily Volume (3 month) Average daily volume (shares) 230,307 Average daily volume ($000s) $4,228 52-Week High and L
Slide 42: Appendix - Reconciliation of Non-GAAP Financial Measures and Quarterly Financial Statistics
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS
Slide 43: Non-GAAP Financial Measures
43 NON-GAAP FINANCIAL MEASURES 2020 2021 2022 2023 YTD Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 PTPP Income and PTPP ROAA: Net income (GAAP) $46,570 $98,035 $81,875 $37,303 $18,584 $20,990 $22,544 $20,457 $16,846 Exclude income tax expense 6,610 22,472 17,561 7,238 3,977 4,657 5,345 4,213 3,025 Exclu
Slide 44: Tangible Book Value Per Share
44 2009 2010 2011 2012 2013 2014 2015 2016 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $158,498 $202,279 $202,520 $198,938 $215,762 $454,506 $469,970 $481,763 Exclude intangible assets (13,358) (14,965) (14,525) (14,098) (30,980) (129,918) (127,818) (126,403) Exclude preferred s
Slide 45: Quarterly Financial Statistics
45 As of Period End or for the Three Months Ended June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 Profitability: Net income (GAAP) $ 18,584 $ 20,990 $ 22,544 $ 20,457 $ 16,846 Pre-tax, pre-provision net income (non-GAAP) 21,357 27,592 29,299 26,495 21,780 Diluted earn