FOR IMMEDIATE RELEASE

DATE: January 27, 2022

HERITAGE FINANCIAL ANNOUNCES FOURTH QUARTER AND ANNUAL 2021 RESULTS AND DECLARES REGULAR CASH DIVIDEND

•Net income was $19.4 million, or $0.55 per diluted share, for the fourth quarter of 2021 compared to $20.6 million, or $0.58 per diluted share, for the third quarter of 2021 and $23.9 million, or $0.66 per diluted share, for the fourth quarter of 2020.

•Net income was $98.0 million, or $2.73 per diluted share, for the year ended 2021 compared to $46.6 million, or $1.29 per diluted share, for the year ended 2020.

•Reversal of provision for credit losses was $5.0 million for the fourth quarter of 2021 compared to $3.1 million for both the third quarter of 2021 and the fourth quarter of 2020. Reversal of provision for credit losses was $29.4 million for the year ended 2021 compared to a provision for credit losses of $36.1 million for the year ended 2020.

•The ratio of nonperforming assets to total assets decreased to 0.32% at December 31, 2021 compared to 0.36% at September 30, 2021 and 0.88%% at December 31, 2020.

•Noninterest expense to average total assets, annualized, was 2.06% for the fourth quarter of 2021 compared to 2.04% for third quarter of 2021 and 2.30% for the fourth quarter of 2020.

•New commercial loan commitments originated totaled $329.2 million for the fourth quarter of 2021 compared to $270.8 million in the third quarter of 2021 and $164.5 million in the fourth quarter of 2020.

•Capital remains strong with a Tier 1 leverage ratio of 8.7% and a total risk-based capital ratio of 14.8% at December 31, 2021.

•Declared a regular cash dividend of $0.21 per common share on January 26, 2022.

Olympia, WA - Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank ("Bank"), today reported net income of $19.4 million for the fourth quarter of 2021 compared to $20.6 million for the third quarter of 2021 and $23.9 million for the fourth quarter of 2020. Diluted earnings per share for the fourth quarter of 2021 were $0.55 compared to $0.58 for the third quarter of 2021 and $0.66 for the fourth quarter of 2020. Net income for the year ended 2021 totaled $98.0 million, or $2.73 per diluted share, compared to $46.6 million, or $1.29 per diluted share for 2020.

Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, “While we continue to be challenged by the COVID-environment and the related uncertainty, we begin 2022 on solid ground. We are well-positioned to take advantage of a rising rate environment and we continue to benefit from the strong economic climate in the region.

Further, we are pleased with the success of our ongoing efforts to positively impact housing in the communities we serve. In the fourth quarter, we partnered with Sabin Community Development Corporation, providing $13.4 million of construction financing and $11.7 million of permanent funding through our Low Income Housing Tax Credit investment to build affordable housing units for both families and seniors allowing people of color who are at risk of gentrification to live in the heart of Portland’s historically African-American community in North / Northeast Portland.”

Financial Highlights

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

			As of or for the Quarter Ended
			December 31, 2021						September 30, 2021						December 31, 2020
			(Dollars in thousands, except per share amounts)
Net income			$	19,397					$	20,592					$	23,882
Pre-tax, pre-provision income (1)			$	19,282					$	22,440					$	25,178

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			As of or for the Quarter Ended
			December 31, 2021						September 30, 2021						December 31, 2020
Diluted earnings per share			$	0.55					$	0.58					$	0.66
Return on average assets (2)			1.04		%				1.13		%				1.42		%
Pre-tax, pre-provision return on average assets (1) (2)			1.03		%				1.23		%				1.50		%
Return on average common equity (2)			9.06		%				9.55		%				11.74		%
Return on average tangible common equity (1) (2)			13.27		%				13.93		%				17.62		%
Net interest margin (2)			2.85		%				3.15		%				3.53		%
Cost of total deposits (2)			0.09		%				0.09		%				0.14		%
Efficiency ratio			66.61		%				62.35		%				60.50		%
Noninterest expense to average total assets (2)			2.06		%				2.04		%				2.30		%
Total assets			$	7,432,412					$	7,259,038					$	6,615,318
Loans receivable, net			$	3,773,301					$	3,905,567					$	4,398,462
Total deposits			$	6,381,337					$	6,215,558					$	5,597,990
Loan to deposit ratio (3)			59.8		%				63.6		%				79.8		%
Book value per share			$	24.34					$	24.13					$	22.85
Tangible book value per share (1)			$	17.19					$	16.97					$	15.77

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

    (2) Annualized.

    (3) Loans receivable divided by total deposits.

SBA PPP Loans

The Company has supported its community and customers during the COVID-19 pandemic through its participation in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). The SBA PPP ended on May 31, 2021.

The following table summarizes the SBA PPP activity as of and for the period indicated:

			As of or for the Quarter Ended
			December 31, 2021						September 30, 2021						December 31, 2020
			(In thousands)
Net deferred fees recognized during the period			$	4,399					$	7,030					$	6,623
Net deferred fees unrecognized as of period end			4,936						9,335						15,392
Principal payments received during the period, including forgiveness payments from the SBA			125,455						284,385						159,284
Amortized cost as of period end			145,840						266,896						715,121

Balance Sheet

Total investment securities increased $205.1 million, or 19.1%, to $1.28 billion at December 31, 2021 from $1.07 billion at September 30, 2021 due primarily to purchases to deploy excess liquidity into higher yielding assets.

The following table summarizes the Company's loans receivable, net at the dates indicated:

			December 31, 2021												September 30, 2021												Change
			Balance						% of Total						Balance						% of Total						Amount						%
			(Dollars in thousands)
Commercial business:
Commercial and industrial			$	621,567					16.3		%				$	652,776					16.5		%				$	(31,209)					(4.8)		%
SBA PPP			145,840						3.8						266,896						6.8						(121,056)						(45.4)
Owner-occupied CRE			931,150						24.4						907,568						23.0						23,582						2.6
Non-owner occupied CRE			1,493,099						39.2						1,459,795						36.8						33,304						2.3
Total commercial business			3,191,656						83.7						3,287,035						83.1						(95,379)						(2.9)

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			December 31, 2021												September 30, 2021												Change
			Balance						% of Total						Balance						% of Total						Amount						%
Residential real estate			164,582						4.3						125,697						3.2						38,885						30.9
Real estate construction and land development:
Residential			85,547						2.2						90,081						2.3						(4,534)						(5.0)
Commercial and multifamily			141,336						3.7						205,516						5.2						(64,180)						(31.2)
Total real estate construction and land development			226,883						5.9						295,597						7.5						(68,714)						(23.2)
Consumer			232,541						6.1						245,555						6.2						(13,014)						(5.3)
Loans receivable			3,815,662						100.0		%				3,953,884						100.0		%				(138,222)						(3.5)
Allowance for credit losses on loans			(42,361)												(48,317)												5,956						(12.3)
Loans receivable, net			$	3,773,301											$	3,905,567											$	(132,266)					(3.4)		%

The Company generated strong loan production with outstanding balances of $222.2 million during the fourth quarter of 2021 as compared to $195.5 million in the third quarter of 2021. Loan repayments for the fourth and third quarters of 2021, exclusive of SBA PPP loans, were $242.9 million and $164.5 million, respectively, with an overall decline in outstanding balances of $138.2 million in the fourth quarter of 2021. The increase in commercial real estate ("CRE") loans included the transfer of several completed projects from real estate construction and land development loans.

Total deposits increased at an annualized rate of 10.6% from September 30, 2021. The following table summarizes the Company's total deposits at the dates indicated:

			December 31, 2021												September 30, 2021																		Change
			Balance						% of Total						Balance						% of Total																								Amount						%
			(Dollars in thousands)
Noninterest demand deposits			$	2,330,956					36.5		%				$	2,299,248					37.0		%																						$	31,708					1.4		%
Interest bearing demand deposits			1,946,605						30.5						1,870,618						30.1																								75,987						4.1
Money market accounts			1,120,174						17.6						1,072,427						17.3																								47,747						4.5
Savings accounts			640,763						10.0						617,469						9.9																								23,294						3.8
Total non-maturity deposits			6,038,498						94.6						5,859,762						94.3																								178,736						3.1
Certificates of deposit			342,839						5.4						355,796						5.7																								(12,957)						(3.6)
Total deposits			$	6,381,337					100.0		%				$	6,215,558					100.0		%																						$	165,779					2.7		%

During the fourth quarter of 2021, the Company repurchased $1.5 million, or 63,884 shares of its common stock, under the current repurchase plan, at a weighted average price per share of $23.02, as compared to the repurchase of $20.6 million, or 841,088 shares of its common stock, at a weighted average price per share of $24.54 during the third quarter of 2021. Repurchases under the current repurchase plan for the year ended 2021 totaled $22.1 million, or 904,972 shares of common stock, at a weighted average price per share of $24.43 and represented approximately 2.5% of common stock outstanding at December 31, 2020. As of December 31, 2021, there were 738,304 shares available for repurchase under the current repurchase plan.

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

			December 31, 2021						September 30, 2021						Change
Capital Ratios:
Stockholders' equity to total assets			11.5		%				11.7		%				(0.2)		%
Tangible common equity to tangible assets (1)			8.4						8.5						(0.1)
Common equity Tier 1 capital to risk-weighted assets (2)			13.5						13.3						0.2
Tier 1 leverage capital to average quarterly assets (2)			8.7						8.8						(0.1)
Tier 1 capital to risk-weighted assets (2)			13.9						13.8						0.1
Total capital to risk-weighted assets (2)			14.8						14.8						—

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

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

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Allowance for Credit Losses and Provision for Credit Losses

The following table provides detail on the changes in the allowance for credit losses ("ACL") on loans and the ACL on unfunded commitments ("Unfunded") and the related (reversal of) provision for credit losses for the periods indicated:

			As of or for the Quarter Ended
			December 31, 2021																		September 30, 2021																		December 31, 2020
			ACL on Loans						ACL on Unfunded						Total						ACL on Loans						ACL on Unfunded						Total						ACL on Loans						ACL on Unfunded						Total
			(Dollars in thousands)
Balance, beginning of period			$	48,317					$	2,154					$	50,471					$	51,562					$	2,451					$	54,013					$	73,340					$	5,022					$	78,362
(Reversal of) provision for credit losses			(5,490)						453						(5,037)						(2,852)						(297)						(3,149)						(2,792)						(341)						(3,133)
Net charge-offs			(466)						—						(466)						(393)						—						(393)						(363)						—						(363)
Balance, end of period			$	42,361					$	2,607					$	44,968					$	48,317					$	2,154					$	50,471					$	70,185					$	4,681					$	74,866

The ACL on loans decreased compared to September 30, 2021 due primarily to continued improvement in forecasted economic indicators used to calculate credit losses as well as changes in the loan mix.

Credit Quality

Nonperforming assets decreased to 0.32% of total assets at December 31, 2021 compared to 0.36% of total assets at September 30, 2021. Nonperforming assets at both December 31, 2021 and September 30, 2021 consisted only of nonaccrual loans. Changes in nonaccrual loans during the periods indicated were as follows:

			Quarter Ended
			December 31, 2021						September 30, 2021									December 31, 2020
			(In thousands)
Balance, beginning of period			$	25,894					$	35,341								$	52,604
Additions to nonaccrual loan classification			333						293									8,345
Net principal payments and transfers to accruing status			(1,435)						(8,139)									(2,186)
Payoffs			(540)						(911)									(82)
Charge-offs			(498)						(690)									(589)
Balance, end of period			$	23,754					$	25,894								$	58,092

Net Interest Income and Net Interest Margin

Net interest income decreased $3.5 million, or 6.8%, for the fourth quarter of 2021 compared to the third quarter of 2021 due primarily to a decrease in deferred SBA PPP loan fees recognized due to a decrease in the volume of forgiven SBA PPP loans.

Net interest income decreased $4.5 million, or 8.7%, compared to the fourth quarter of 2020 also due to the decrease in deferred SBA PPP loan fees recognized as well as lower loan yield. The decrease in net interest income was offset partially by a higher average balance of taxable securities and other interest earning deposits in addition to a lower cost of deposits reflecting a continued decrease in rates on deposit accounts due to the ongoing low-rate environment.

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

			Quarter Ended
			December 31, 2021						September 30, 2021						December 31, 2020
Loan yield (GAAP)			4.42		%				4.64		%				4.39		%
Exclude impact from SBA PPP loans			(0.29)						(0.38)						0.02
Exclude impact from incremental accretion on purchased loans			(0.05)						(0.07)						(0.07)
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans (non-GAAP) (1)			4.08		%				4.19		%				4.34		%

(1) See Non-GAAP Financial Measures section.

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Net interest margin decreased to 2.85% for the fourth quarter of 2021 as compared to 3.15% for the third quarter of 2021 due primarily to lower loan yield and an increase in the balance of lower yielding average interest earning deposits.

Net interest margin decreased from 3.53% for the fourth quarter of 2020 due primarily to the change in the mix of total interest earning assets, including an increase in the balance of lower yielding average interest earning deposits.

Noninterest Income

The following table presents the key components of noninterest income and the change for the periods indicated:

			Quarter Ended																		Quarter Over Quarter Change												Prior Year Quarter Change
			December 31, 2021						September 30, 2021						December 31, 2020						Change						% Change						Change						% Change
			(Dollar amounts in thousands)
Service charges and other fees			$	4,609					$	4,566					$	4,213					$	43					0.9		%				$	396					9.4		%
Gain on sale of investment securities, net			—						—						55						—						—						(55)						(100.0)
Gain on sale of loans, net			506						765						1,919						(259)						(33.9)						(1,413)						(73.6)
Interest rate swap fees			174						126						230						48						38.1						(56)						(24.3)
Bank owned life insurance income			500						647						1,880						(147)						(22.7)						(1,380)						(73.4)
Gain on sale of other assets, net			2,717						942						921						1,775						188.4						1,796						195.0
Other income			1,333						1,182						2,067						151						12.8						(734)						(35.5)
Total noninterest income			$	9,839					$	8,228					$	11,285					$	1,611					19.6		%				$	(1,446)					(12.8)		%

Noninterest income increased during the fourth quarter of 2021 compared to the third quarter of 2021 due primarily to a gain of $2.7 million related to the sale and leaseback of the Company's headquarters in Olympia, WA included in gain on sale of other assets.

Noninterest income decreased from the same period in 2020 due primarily to reduced gain on sale of loans, net as sales volume of secondary market mortgage loans declined and less bank owned life insurance income and other income as the fourth quarter of 2020 included the recognition of a death benefit of $1.2 million and a termination fee of $651,000 from the divestiture of our trust department. The decrease in noninterest income was offset partially by an increase in gain on sale of other assets due to the gain on sale of the Company's headquarters discussed above.

Noninterest Expense

The following table presents the key components of noninterest expense and the change for the periods indicated:

			Quarter Ended																		Quarter Over Quarter Change												Prior Year Quarter Change
			December 31, 2021						September 30, 2021						December 31, 2020						Change						% Change						Change						% Change
			(Dollar amounts in thousands)
Compensation and employee benefits			$	23,155					$	22,176					$	22,257					$	979					4.4		%				$	898					4.0		%
Occupancy and equipment			4,325						4,373						4,364						(48)						(1.1)						(39)						(0.9)
Data processing			4,694						4,029						3,714						665						16.5						980						26.4
Marketing			703						775						783						(72)						(9.3)						(80)						(10.2)
Professional services			816						816						1,289						—						—						(473)						(36.7)
State/municipal business and use tax			850						1,071						1,128						(221)						(20.6)						(278)						(24.6)
Federal deposit insurance premium			628						550						703						78						14.2						(75)						(10.7)
Amortization of intangible assets			759						758						859						1						0.1						(100)						(11.6)
Other expense			2,535						2,618						3,465						(83)						(3.2)						(930)						(26.8)
Total noninterest expense			$	38,465					$	37,166					$	38,562					$	1,299					3.5		%				$	(97)					(0.3)		%

Noninterest expense increased from the third quarter of 2021 due primarily to an increase in compensation and employee benefits as a result of severance payments following a strategic reduction in force and an increase in accrual for incentive

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payments. Additionally, data processing increased as the Bank continues to invest in technology.

Noninterest expense remained relatively constant compared to the fourth quarter of 2020. However, there was a decrease in expenses related to branch consolidations recognized during the fourth quarter of 2020, predominately within other expense, offset partially by increases in compensation and employee benefits and data processing for the same reasons discussed above.

Income Tax Expense

The following table presents the income tax expense and related metrics and the change for the periods indicated:

			Quarter Ended																		Quarter Over Quarter Change												Prior Year Quarter Change
			December 31, 2021						September 30, 2021						December 31, 2020						Change						% Change						Change						% Change
			(Dollar amounts in thousands)
Income before income taxes			$	24,319					$	25,589					$	28,311					$	(1,270)					(5.0)		%				$	(3,992)					(14.1)		%
Income tax expense			$	4,922					$	4,997					$	4,429					$	(75)					(1.5)		%				$	493					11.1		%
Effective income tax rate			20.2		%				19.5		%				15.6		%				0.7		%				3.6		%				4.6		%				29.5		%

Income tax expense decreased for the fourth quarter of 2021 compared to the third quarter of 2021 and increased compared to the same period in 2020 primarily reflecting the change in income before income taxes earned between the periods. Additionally, the effective income tax rate increased between the same periods due primarily to an increase in annual pre-tax income for the year ended 2021, 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.

Dividend

On January 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.21 per share. The dividend is payable on February 23, 2022 to shareholders of record as of the close of business on February 9, 2022.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on January 27, 2022 at 11:00 a.m. Pacific time. To access the call, please dial (844) 200-6205 -- access code 09084 a few minutes prior to 11:00 a.m. Pacific time. The call will be available for replay through February 3, 2022 by dialing (866) 813-9403 -- access code 668648.

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 branch network of 49 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

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 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

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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 2022 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.

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HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollar amounts in thousands, except shares)

			December 31, 2021						September 30, 2021						December 31, 2020
Assets
Cash on hand and in banks			$	61,377					$	86,954					$	91,918
Interest earning deposits			1,661,915						1,547,785						651,404
Cash and cash equivalents			1,723,292						1,634,739						743,322
Investment securities available for sale, at fair value (amortized cost of $883,832, $744,336 and $770,195, respectively)			894,335						761,526						802,163
Investment securities held to maturity, at amortized cost (fair value of $376,331, $307,330 and $0, respectively)			383,393						311,074						—
Total investment securities			1,277,728						1,072,600						802,163
Loans held for sale			1,476						2,636						4,932
Loans receivable			3,815,662						3,953,884						4,468,647
Allowance for credit losses on loans			(42,361)						(48,317)						(70,185)
Loans receivable, net			3,773,301						3,905,567						4,398,462
Other real estate owned			—						—						—
Premises and equipment, net			79,370						79,958						85,452
Federal Home Loan Bank ("FHLB") stock, at cost			7,933						7,933						6,661
Bank owned life insurance			120,196						109,634						107,580
Accrued interest receivable			14,657						14,802						19,418
Prepaid expenses and other assets			183,543						179,494						193,301
Other intangible assets, net			9,977						10,736						13,088
Goodwill			240,939						240,939						240,939
Total assets			$	7,432,412					$	7,259,038					$	6,615,318
Liabilities and Stockholders' Equity
Deposits			$	6,381,337					$	6,215,558					$	5,597,990
Junior subordinated debentures			21,180						21,107						20,887
Securities sold under agreement to repurchase			50,839						44,096						35,683
Accrued expenses and other liabilities			124,624						129,873						140,319
Total liabilities			6,577,980						6,410,634						5,794,879
Common stock			551,798						552,385						571,021
Retained earnings			293,238						281,285						224,400
Accumulated other comprehensive income, net			9,396						14,734						25,018
Total stockholders' equity			854,432						848,404						820,439
Total liabilities and stockholders' equity			$	7,432,412					$	7,259,038					$	6,615,318
Shares outstanding			35,105,779						35,166,599						35,912,243

8

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollar amounts in thousands, except per share amounts)

			Quarter Ended																		Year Ended
			December 31, 2021						September 30, 2021						December 31, 2020						December 31, 2021						December 31, 2020
Interest Income
Interest and fees on loans			$	42,695					$	46,863					$	50,089					$	189,832					$	192,417
Taxable interest on investment securities			5,197						4,711						3,473						17,492						17,541
Nontaxable interest on investment securities			1,063						931						973						3,899						3,659
Interest on interest earning deposits			633						537						142						1,608						703
Total interest income			49,588						53,042						54,677						212,831						214,320
Interest Expense
Deposits			1,464						1,444						1,993						6,160						12,265
Junior subordinated debentures			185						184						191						742						890
Other borrowings			31						36						38						140						168
Total interest expense			1,680						1,664						2,222						7,042						13,323
Net interest income			47,908						51,378						52,455						205,789						200,997
(Reversal of) provision for credit losses			(5,037)						(3,149)						(3,133)						(29,372)						36,106
Net interest income after (reversal of) provision for credit losses			52,945						54,527						55,588						235,161						164,891
Noninterest Income
Service charges and other fees			4,609						4,566						4,213						17,597						16,228
Gain on sale of investment securities, net			—						—						55						29						1,518
Gain on sale of loans, net			506						765						1,919						3,644						5,044
Interest rate swap fees			174						126						230						661						1,691
Bank owned life insurance income			500						647						1,880						2,520						4,319
Gain on sale of other assets, net			2,717						942						921						4,405						955
Other income			1,333						1,182						2,067						5,759						7,474
Total noninterest income			9,839						8,228						11,285						34,615						37,229
Noninterest Expense
Compensation and employee benefits			23,155						22,176						22,257						89,880						88,106
Occupancy and equipment			4,325						4,373						4,364						17,243						17,611
Data processing			4,694						4,029						3,714						16,533						14,449
Marketing			703						775						783						3,039						3,100
Professional services			816						816						1,289						4,065						5,921
State/municipal business and use taxes			850						1,071						1,128						3,884						3,754
Federal deposit insurance premium			628						550						703						2,106						1,789
Other real estate owned, net			—						—						—						—						(145)
Amortization of intangible assets			759						758						859						3,111						3,525
Other expense			2,535						2,618						3,465						9,408						10,830
Total noninterest expense			38,465						37,166						38,562						149,269						148,940
Income before income taxes			24,319						25,589						28,311						120,507						53,180
Income tax expense			4,922						4,997						4,429						22,472						6,610
Net income			$	19,397					$	20,592					$	23,882					$	98,035					$	46,570
Basic earnings per share			$	0.56					$	0.58					$	0.66					$	2.75					$	1.29
Diluted earnings per share			$	0.55					$	0.58					$	0.66					$	2.73					$	1.29
Dividends declared per share			$	0.21					$	0.20					$	0.20					$	0.81					$	0.80
Average shares outstanding - basic			35,154,382						35,644,192						35,910,430						35,677,851						36,014,445
Average shares outstanding - diluted			35,439,998						35,929,518						36,188,579						35,973,386						36,170,066

9

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollar amounts in thousands, except per share amounts)

Nonperforming Assets and Credit Quality Metrics:

			Quarter Ended																		Year Ended
			December 31, 2021						September 30, 2021						December 31, 2020						December 31, 2021						December 31, 2020
Allowance for Credit Losses on Loans:
Balance, beginning of period			$	48,317					$	51,562					$	73,340					$	70,185					$	36,171
Impact of CECL adoption			—						—						—						—						1,822
Adjusted balance, beginning of period			48,317						51,562						73,340						70,185						37,993
(Reversal of) provision for credit losses on loans			(5,490)						(2,852)						(2,792)						(27,298)						35,433
Charge-offs:
Commercial business			(519)						(743)						(198)						(1,276)						(3,751)
Real estate construction and land development			—						—						(417)						(1)						(417)
Consumer			(160)						(204)						(313)						(669)						(1,454)
Total charge-offs			(679)						(947)						(928)						(1,946)						(5,622)
Recoveries:
Commercial business			81						385						310						816						1,530
Residential real estate			—						—						—						—						3
Real estate construction and land development			4						8						118						32						278
Consumer			128						161						137						572						570
Total recoveries			213						554						565						1,420						2,381
Net charge-offs			(466)						(393)						(363)						(526)						(3,241)
Balance, end of period			$	42,361					$	48,317					$	70,185					$	42,361					$	70,185
Net charge-offs on loans to average loans, annualized			0.05		%				0.04		%				0.03		%				0.01		%				0.07		%

			December 31, 2021						September 30, 2021						December 31, 2020
Nonperforming Assets:
Nonaccrual loans:
Commercial business			$	23,107					$	25,243					$	56,786
Residential real estate			47						51						184
Real estate construction and land development			571						571						1,022
Consumer			29						29						100
Total nonaccrual loans			23,754						25,894						58,092
Other real estate owned			—						—						—
Nonperforming assets			$	23,754					$	25,894					$	58,092
Restructured performing loans			$	59,110					$	60,684					$	52,872
Accruing loans past due 90 days or more			293						—						—
ACL on loans to:
Loans receivable			1.11		%				1.22		%				1.57		%
Loans receivable, excluding SBA PPP loans (1)			1.15		%				1.31		%				1.87		%
Nonaccrual loans			178.33		%				186.60		%				120.82		%
Nonperforming loans to loans receivable			0.62		%				0.65		%				1.30		%
Nonperforming assets to total assets			0.32		%				0.36		%				0.88		%

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

10

Average Balances, Yields, and Rates Paid:

			Quarter Ended
			December 31, 2021																		September 30, 2021																		December 31, 2020
			Average Balance						Interest Earned/ Paid						Average Yield/ Rate (1)						Average Balance						Interest Earned/ Paid						Average Yield/ Rate (1)						Average Balance						Interest Earned/ Paid						Average Yield/ Rate (1)
Interest Earning Assets:
Loans receivable, net (2)(3)			$	3,836,029					$	42,695					4.42		%				$	4,005,585					$	46,863					4.64		%				$	4,540,962					$	50,089					4.39		%
Taxable securities			1,016,629						5,197						2.03						893,374						4,711						2.09						649,287						3,473						2.13
Nontaxable securities (3)			153,686						1,063						2.74						157,907						931						2.34						164,025						973						2.36
Interest earning deposits			1,665,640						633						0.15						1,417,661						537						0.15						559,491						142						0.10
Total interest earning assets			6,671,984						49,588						2.95		%				6,474,527						53,042						3.25		%				5,913,765						54,677						3.68		%
Noninterest earning assets			731,613																		740,433																		761,712
Total assets			$	7,403,597																	$	7,214,960																	6,675,477
Interest Bearing Liabilities:
Certificates of deposit			$	349,708					$	364					0.41		%				$	365,278					$	407					0.44		%				$	421,633					$	720					0.68		%
Savings accounts			631,531						93						0.06						609,818						90						0.06						532,301						106						0.08
Interest bearing demand and money market accounts			2,996,482						1,007						0.13						2,881,567						947						0.13						2,680,084						1,167						0.17
Total interest bearing deposits			3,977,721						1,464						0.15						3,856,663						1,444						0.15						3,634,018						1,993						0.22
Junior subordinated debentures			21,140						185						3.47						21,060						184						3.47						20,840						191						3.65
Securities sold under agreement to repurchase			46,942						31						0.26						52,197						36						0.27						35,278						38						0.43
Total interest bearing liabilities			4,045,803						1,680						0.16		%				3,929,920						1,664						0.17		%				3,690,136						2,222						0.24		%
Noninterest demand deposits			2,383,651																		2,300,795																		2,034,425
Other noninterest bearing liabilities			124,760																		128,537																		141,917
Stockholders’ equity			849,383																		855,708																		808,999
Total liabilities and stockholders’ equity			$	7,403,597																	$	7,214,960																	$	6,675,477
Net interest and spread									$	47,908					2.79		%										$	51,378					3.08		%										$	52,455					3.44		%
Net interest margin															2.85		%																3.15		%																3.53		%

(1)Annualized; average balances are calculated using daily balances.

(2)Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $5.2 million, $7.8 million and $6.9 million for the fourth quarter of 2021, third quarter of 2021 and fourth quarter of 2020, respectively.

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

11

			Year Ended
			December 31, 2021																		December 31, 2020
			Average Balance						Interest Earned/ Paid						Average Yield/ Rate (1)						Average Balance						Interest Earned/ Paid						Average Yield/ Rate (1)
Interest Earning Assets:
Loans receivable, net (2) (3)			$	4,181,464					$	189,832					4.54		%				$	4,335,564					$	192,417					4.44		%
Taxable securities			846,892						17,492						2.07						731,378						17,541						2.40
Nontaxable securities (3)			158,968						3,899						2.45						152,447						3,659						2.40
Interest earning deposits			1,193,724						1,608						0.13						315,847						703						0.22
Total interest earning assets			6,381,048						212,831						3.34		%				5,535,236						214,320						3.87		%
Noninterest earning assets			745,202																		758,386
Total assets			$	7,126,250																	$	6,293,622
Interest Bearing Liabilities:
Certificates of deposit			$	372,279					$	1,811					0.49		%				$	482,316					$	5,675					1.18		%
Savings accounts			598,492						367						0.06						489,471						526						0.11
Interest bearing demand and money market accounts			2,862,504						3,982						0.14						2,491,477						6,064						0.24
Total interest bearing deposits			3,833,275						6,160						0.16						3,463,264						12,265						0.35
Junior subordinated debentures			21,025						742						3.53						20,730						890						4.29
Securities sold under agreement to repurchase			45,655						140						0.31						27,805						160						0.58
FHLB advances and other borrowings			—						—						—						1,466						8						0.55
Total interest bearing liabilities			3,899,955						7,042						0.18		%				3,513,265						13,323						0.38		%
Noninterest demand deposits			2,256,608																		1,835,165
Other noninterest bearing liabilities			127,620																		139,612
Stockholders’ equity			842,067																		805,580
Total liabilities and stockholders’ equity			$	7,126,250																	$	6,293,622
Net interest income and spread									$	205,789					3.16		%										$	200,997					3.49		%
Net interest margin															3.23		%																3.63		%

(1)Average balances are calculated using daily balances.

(2)Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $28.4 million and $14.4 million for the years ended 2021 and 2020, respectively.

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

12

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollar amounts in thousands, except per share amounts)

			Quarter Ended
			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
Earnings:
Net interest income			$	47,908					$	51,378					$	54,265					$	52,238					$	52,455
(Reversal of) provision for credit losses			(5,037)						(3,149)						(13,987)						(7,199)						(3,133)
Noninterest income			9,839						8,228						8,297						8,251						11,285
Noninterest expense			38,465						37,166						36,396						37,242						38,562
Net income			19,397						20,592						32,702						25,344						23,882
Pre-tax, pre-provision net income (3)			19,282						22,440						26,166						23,247						25,178
Basic earnings per share			$	0.56					$	0.58					$	0.91					$	0.70					$	0.66
Diluted earnings per share			$	0.55					$	0.58					$	0.90					$	0.70					$	0.66
Average Balances:
Loans receivable, net (1)			$	3,836,029					$	4,005,585					$	4,402,868					$	4,490,499					$	4,540,962
Total investment securities			1,170,315						1,051,281						959,512						838,182						813,312
Total interest earning assets			6,671,984						6,474,527						6,327,171						6,042,566						5,913,765
Total assets			7,403,597						7,214,960						7,079,205						6,799,625						6,675,477
Total interest bearing deposits			3,977,721						3,856,663						3,809,750						3,685,496						3,634,018
Total noninterest demand deposits			2,383,651						2,300,795						2,246,929						2,091,359						2,034,425
Stockholders' equity			849,383						855,708						835,761						827,021						808,999
Financial Ratios:
Return on average assets (2)			1.04		%				1.13		%				1.85		%				1.51		%				1.42		%
Pre-tax, pre-provision return on average assets (2)(3)			1.03						1.23						1.48						1.39						1.50
Return on average common equity (2)			9.06						9.55						15.69						12.43						11.74
Return on average tangible common equity (2) (3)			13.27						13.93						22.94						18.37						17.62
Efficiency ratio			66.61						62.35						58.18						61.57						60.50
Noninterest expense to average total assets (2)			2.06						2.04						2.06						2.22						2.30
Net interest margin (2)			2.85						3.15						3.44						3.51						3.53
Net interest spread (2)			2.79						3.08						3.37						3.43						3.44

(1) Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield.

(2) Annualized.

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

13

			As of or for the Quarter Ended
			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
Select Balance Sheet:
Total assets			$	7,432,412					$	7,259,038					$	7,105,672					$	7,028,392					$	6,615,318
Loans receivable, net			3,773,301						3,905,567						4,155,968						4,531,644						4,398,462
Total investment securities			1,277,728						1,072,600						1,049,524						893,558						802,163
Deposits			6,381,337						6,215,558						6,061,706						6,019,698						5,597,990
Noninterest demand deposits			2,330,956						2,299,248						2,256,341						2,205,562						1,980,531
Stockholders' equity			854,432						848,404						855,984						827,151						820,439
Financial Measures:
Book value per share			$	24.34					$	24.13					$	23.77					$	22.99					$	22.85
Tangible book value per share (1)			17.19						16.97						16.76						15.95						15.77
Stockholders' equity to total assets			11.5		%				11.7		%				12.0		%				11.8		%				12.4		%
Tangible common equity to tangible assets (1)			8.4						8.5						8.8						8.5						8.9
Loans to deposits ratio			59.8						63.6						69.4						76.3						79.8
Regulatory Capital Ratios:
Common equity Tier 1 capital to risk-weighted assets(2)			13.5		%				13.3		%				13.6		%				12.8		%				12.3		%
Tier 1 leverage capital to average assets(2)			8.7		%				8.8		%				9.1		%				9.1		%				9.0		%
Tier 1 capital to risk-weighted assets(2)			13.9		%				13.8		%				14.0		%				13.2		%				12.8		%
Total capital to risk-weighted assets(2)			14.8		%				14.8		%				15.1		%				14.5		%				14.0		%
Credit Quality Metrics:
ACL on loans to:
Loans receivable			1.11		%				1.22		%				1.23		%				1.40		%				1.57		%
Loans receivable, excluding SBA PPP loans (1)			1.15						1.31						1.41						1.73						1.87
Nonperforming loans			178.33						186.60						145.90						121.48						120.82
Nonperforming loans to loans receivable			0.62						0.65						0.84						1.15						1.30
Nonperforming assets to total assets			0.32						0.36						0.50						0.75						0.88
Net charge-offs (recoveries) on loans to average loans receivable			0.05						0.04						(0.01)						(0.02)						0.03
Criticized Loans by Credit Quality Rating:
Special mention			$	71,020					$	90,554					$	100,317					$	108,975					$	132,036
Substandard			112,450						126,964						135,374						160,461						158,515
Other Metrics:
Number of banking offices			49						53						53						53						61
Average number of full-time equivalent employees			782						813						822						840						848
Deposits per branch			$	130,231					$	117,275					$	114,372					$	113,579					$	91,770
Average assets per full-time equivalent employee			9,469						8,877						8,607						8,098						7,873

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

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

14

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollar amounts in thousands, except per share amounts)

This earnings release contains certain financial measures not presented in accordance with Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company 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, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. 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 financial measures presented 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.

The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company’s capital levels.

			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)			$	854,432					$	848,404					$	855,984					$	827,151					$	820,439
Exclude intangible assets			(250,916)						(251,675)						(252,433)						(253,230)						(254,027)
Tangible common equity (non-GAAP)			$	603,516					$	596,729					$	603,551					$	573,921					$	566,412
Total assets (GAAP)			$	7,432,412					$	7,259,038					$	7,105,672					$	7,028,392					$	6,615,318
Exclude intangible assets			(250,916)						(251,675)						(252,433)						(253,230)						(254,027)
Tangible assets (non-GAAP)			$	7,181,496					$	7,007,363					$	6,853,239					$	6,775,162					$	6,361,291
Stockholders' equity to total assets (GAAP)			11.5		%				11.7		%				12.0		%				11.8		%				12.4		%
Tangible common equity to tangible assets (non-GAAP)			8.4		%				8.5		%				8.8		%				8.5		%				8.9		%
Shares outstanding			35,105,779						35,166,599						36,006,560						35,981,317						35,912,243
Book value per share (GAAP)			$	24.34					$	24.13					$	23.77					$	22.99					$	22.85
Tangible book value per share (non-GAAP)			$	17.19					$	16.97					$	16.76					$	15.95					$	15.77

The Company considers presenting the ratio of ACL on loans to loans receivable, excluding SBA PPP loans, to be a useful measurement in evaluating the adequacy of the Company's ACL on loans as the balance of SBA PPP loans was significant to the loan portfolio; however, since SBA PPP loans are guaranteed by the SBA, the Company has not provided an ACL on loans for these loans.

			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
ACL on Loans to Loans Receivable, excluding SBA PPP Loans:
Allowance for credit losses on loans			$	42,361					$	48,317					$	51,562					$	64,225					$	70,185
Loans receivable (GAAP)			$	3,815,662					$	3,953,884					$	4,207,530					$	4,595,869					$	4,468,647
Exclude SBA PPP loans			(145,840)						(266,896)						(544,250)						(886,761)						(715,121)
Loans receivable, excluding SBA PPP loans (non-GAAP)			$	3,669,822					$	3,686,988					$	3,663,280					$	3,709,108					$	3,753,526
ACL on loans to loans receivable (GAAP)			1.11		%				1.22		%				1.23		%				1.40		%				1.57		%
ACL on loans to loans receivable, excluding SBA PPP loans (non-GAAP)			1.15		%				1.31		%				1.41		%				1.73		%				1.87		%

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The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company’s ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated.

			Quarter Ended
			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)			$	19,397					$	20,592					$	32,702					$	25,344					$	23,882
Add amortization of intangible assets			759						758						797						797						859
Exclude tax effect of adjustment			(159)						(159)						(167)						(167)						(180)
Tangible net income (non-GAAP)			$	19,997					$	21,191					$	33,332					$	25,974					$	24,561
Average stockholders' equity (GAAP)			$	849,383					$	855,708					$	835,761					$	827,021					$	808,999
Exclude average intangible assets			(251,331)						(252,159)						(252,956)						(253,747)						(254,587)
Average tangible common stockholders' equity (non-GAAP)			$	598,052					$	603,549					$	582,805					$	573,274					$	554,412
Return on average common equity, annualized (GAAP)			9.06		%				9.55		%				15.69		%				12.43		%				11.74		%
Return on average tangible common equity, annualized (non-GAAP)			13.27		%				13.93		%				22.94		%				18.37		%				17.62		%

The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets, are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions. The Company also believes that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on credit loss provisions of various institutions has varied based on the geography of the communities served by a particular institution and the decision to adopt or defer the current expected credit losses ("CECL") methodology required by ASU 2016-13.

			Quarter Ended
			December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Equity, annualized:
Net income (GAAP)			$	19,397					$	20,592					$	32,702					$	25,344					$	23,882
Add income tax expense			4,922						4,997						7,451						5,102						4,429
Add (reversal of) provision for credit losses			(5,037)						(3,149)						(13,987)						(7,199)						(3,133)
Pre-tax, pre-provision income (non-GAAP)			$	19,282					$	22,440					$	26,166					$	23,247					$	25,178
Average total assets (GAAP)			$	7,403,597					$	7,214,960					$	7,079,205					$	6,799,625					$	6,675,477
Return on average assets, annualized (GAAP)			1.04		%				1.13		%				1.85		%				1.51		%				1.42		%
Pre-tax, pre-provision return on average assets (non-GAAP)			1.03		%				1.23		%				1.48		%				1.39		%				1.50		%

The Company believes presenting loan yield excluding the effect of discount accretion on purchased loans is useful in assessing the impact of acquisition accounting on loan yield as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off its balance sheet. Incremental accretion on purchased loans 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 Accounting Standards Update ("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.

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Similarly, presenting loan yield excluding the effect of SBA PPP loans is useful in assessing the impact of these special program loans that are anticipated to substantially decrease within a short time frame.

			Quarter Ended
			December 31, 2021						September 30, 2021						December 31, 2020
Loan Yield, excluding SBA PPP Loans and Incremental Accretion on Purchased Loans, annualized:
Interest and fees on loans (GAAP)			$	42,695					$	46,863					$	50,089
Exclude interest and fees on SBA PPP loans			(4,928)						(8,042)						(8,739)
Exclude incremental accretion on purchased loans			(387)						(681)						(795)
Adjusted interest and fees on loans (non-GAAP)			$	37,380					$	38,140					$	40,555
Average loans receivable, net (GAAP)			$	3,836,029					$	4,005,585					$	4,540,962
Exclude average SBA PPP loans			(204,436)						(392,570)						(822,460)
Adjusted average loans receivable, net (non-GAAP)			$	3,631,593					$	3,613,015					$	3,718,502
Loan yield, annualized (GAAP)			4.42		%				4.64		%				4.39		%
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, annualized (non-GAAP)			4.08		%				4.19		%				4.34		%

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