Business Description
Heritage Financial Corporation is a bank holding company that was incorporated
in the State of Washington in August 1997. We were organized for the purpose
of acquiring all of the capital stock of Heritage Savings Bank upon our reorganization
from the mutual holding company form of organization to the stock holding company
form of organization. Effective September 1, 2004, Heritage Savings Bank switched
its charter from a state chartered savings bank to a state chartered commercial
bank and changed its legal name from Heritage Savings Bank to Heritage Bank
(the "Bank"). The Company acquired Central Valley Bank in March 1999
and changed its charter from a nationally chartered commercial bank to a state
chartered commercial bank effective September 1, 2005. In 1998, the Company
acquired North Pacific Bank. In June 2006, the Company completed the acquisition
of Western Washington Bancorp and its wholly owned subsidiary, Washington State
Bank, N.A., at which time Washington State Bank, N.A. was merged into Heritage
Bank.
Lending activities are conducted through Heritage Bank. Our focus is on commercial
business lending. We also originate consumer loans, real estate construction
and land development loans and one-to-four family residential loans. Our loans
are originated under policies that are reviewed and approved annually by our
Board of Directors. In addition, we have established internal lending guidelines
that are updated as needed. These policies and guidelines address underwriting
standards, structure and rate considerations, and compliance with laws, regulations
and internal lending limits. We conduct post-approval reviews on selected loans
and routinely perform internal loan reviews of our loan portfolio to check for
credit quality, proper documentation and compliance with laws and regulations.
We originate one-to-four family residential construction loans for the construction
of custom homes (where the home buyer is the borrower). We also provide financing
to builders for the construction of pre-sold homes and, in selected cases, to
builders for the construction of speculative residential property. Because of
the higher risks present in the residential construction industry, our lending
to builders is limited to those who have demonstrated a favorable record of
performance and who are building in markets that management understands.
In the ordinary course of business, we enter into various types of transactions
that include commitments to extend credit that are not included in our Consolidated
Financial Statements. We apply the same credit standards to these commitments
as we use in all our lending activities and have included these commitments
in our lending risk evaluations. Our exposure to credit loss under commitments
to extend credit is represented by the amount of these commitments.
Our business consists primarily of lending and deposit relationships with small
businesses and their owners in our market areas, and attracting deposits from
the general public. We also make real estate construction and land development
loans and consumer loans. The Bank also originates for sale or investment purposes
one-to-four family residential loans on residential properties located primarily
in western and central Washington State and the greater Portland, Oregon area.
As a result of the Washington Banking Merger, we currently originate indirect
consumer loans. These loans are for new and used automobile and recreational
vehicles that are originated indirectly by selected dealers located in our market
areas. We have limited our indirect loans purchased primarily to dealerships
that are established and well known in their market areas and to applicants
that are not classified as sub-prime.
0.82% 
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