John F. Breyer, Jr., Esq. Breyer & Associates PC 8180 Greensboro Drive, Suite 785 McLean, Virginia 22102 (703) 883-1100

Stephen M. Klein, Esq. Miller Nash Graham & Dunn LLP Pier 70, 2801 Alaskan Way, Suite 300 Seattle, Washington 98121 (206) 777-7506

Title of each class of securities to be registered	Amount to be registered (1)		Proposed maximum offering price per share			Proposed maximum aggregate offering price (2)			Amount of registration fee (3)
Common Stock, no par value	2,848,651 shares		N/A			$84,938,187			$ 10,574.80 *

The information in this proxy statement/prospectus is not complete and may be changed. We may not issue the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities, and we are not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROXY STATEMENT/PROSPECTUS—SUBJECT TO COMPLETION—

 

                                                             

To the Shareholders of Premier Commercial Bancorp:

You are cordially invited to attend the special meeting of shareholders of Premier Commercial Bancorp, which we refer to as Premier Commercial. The special meeting will be held on Friday, June 15, 2018, at 10:00 a.m., Pacific Time at the Walters Cultural Arts Center, located at 527 East Main Street, Hillsboro, Oregon 97123 .

As described in the enclosed proxy statement/prospectus, the board of directors of Premier Commercial has approved a merger agreement that provides for the merger of Premier Commercial with and into Heritage Financial Corporation, which we refer to as Heritage, with Heritage being the surviving entity in the merger. We are seeking your vote on this important transaction, as well as the other matters to be considered at the special meeting.

Under the terms of the merger agreement, Premier Commercial shareholders will have the right, with respect to each of their Premier Commercial common shares, to receive 0.4863 of a share of Heritage common stock, which we refer to as the merger consideration. As of March 8, 2018, the date the merger was announced, the exchange ratio was valued at $15.12  per Premier Commercial common share or approximately $88.6  million in the aggregate based on Heritage's closing stock price of $31.10  on that date.    Based on the closing price of Heritage's common stock of $[·] on [·], 2018, the last trading day before the date of this proxy statement/prospectus, the value of the merger consideration payable to Premier Commercial shareholders was $[·] per share or $[·] in the aggregate.

You should obtain current stock quotations for Heritage common shares and Premier Commercial common shares.  Heritage common shares trade on Nasdaq under the symbol "HFWA" and Premier Commercial common shares trade on the OTC Pink marketplace under the symbol "PRCB."

We expect the transaction to be tax-free for Premier Commercial shareholders, except with respect to any cash received  by them.  After completion of the merger, based on the issued and outstanding Heritage common shares as of March 8, 2018 and the estimated 2,848,651 Heritage common shares to be issued to Premier Commercial shareholders, and an exchange ratio of 0.4863, Premier Commercial shareholders would own approximately 7.8% of Heritage's common shares (ignoring any Heritage common shares they may already own).

We cannot complete the merger unless the holders of a majority of the outstanding Premier Commercial common shares vote to approve the merger agreement. Your vote is very important. Premier Commercial will hold its special meeting of shareholders on June 15 , 2018 to vote on the merger agreement. Your board of directors recommends that you vote FOR approval of the merger agreement and the other items to be considered at the special meeting. Whether or not you plan to attend the special meeting, please take the time to vote on the proposal to approve the merger agreement and the other matters to be considered by following the instructions that accompany your proxy card and casting your vote by internet, by telephone, or by returning your completed, signed, and dated

 

proxy card in the enclosed envelope (please allow a minimum of 10 days for your proxy card to be processed).  Please vote as soon as possible to make sure that your shares are represented at the special meeting. If you do not vote, it will have the same effect as voting against the merger agreement.

We encourage you to read carefully the detailed information about the merger contained in this proxy statement/prospectus, including the section entitled "Risk Factors" beginning on page 12 . This proxy statement/prospectus incorporates important business and financial information and risk factors about Heritage that are not included in or delivered with this document. See the section entitled "Where You Can Find More Information" on page 68 .

We look forward to seeing you at the special meeting.

 

	Rick A. Roby President and Chief Executive Officer Premier Commercial Bancorp

 

 

The securities that Heritage is offering through this proxy statement/prospectus are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of Heritage or Premier Commercial, and they are not insured by the Federal Deposit Insurance Corporation or any other government agency.

This proxy statement/prospectus is dated [·], 2018 and is first being mailed to Premier Commercial shareholders or otherwise delivered to Premier Commercial shareholders on or about [●], 2018.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Heritage from documents filed with the Securities and Exchange Commission, or the SEC, that are not included in or delivered with this proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by Heritage at no cost from the SEC's website at www.sec.gov or by requesting them in writing or by telephone from Heritage:

Heritage Financial Corporation

201 Fifth Avenue SW

Olympia, Washington 98501

Attn: Investor Relations

(360) 943-1500

All website addresses given in this proxy statement/prospectus are for information only and are not intended to be an active link or to incorporate any website information into this proxy statement/prospectus.

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [·], 2018, and you should assume that the information in this proxy statement/prospectus is accurate only as of such date. You should assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of the date of the document that includes such information. Neither the mailing of this proxy statement/prospectus to Premier Commercial shareholders nor the issuance by Heritage of Heritage common shares in connection with the merger will create any implication to the contrary.

Please note that copies of this proxy statement/prospectus provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into this proxy statement/prospectus.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this proxy statement/prospectus  regarding Heritage has been provided by Heritage and information contained in this proxy statement/prospectus  regarding Premier Commercial has been provided by Premier Commercial.

If you would like to request documents, please do so by [●], 2018 in order to receive them before Premier Commercial's special meeting of shareholders. See the section entitled "Where You Can Find More Information" on page 68 .

Premier Commercial Bancorp
314 East Main Street

Hillsboro, Oregon 97123

NOTICE OF SPECIAL MEETING OF PREMIER COMMERCIAL SHAREHOLDERS

•

Date:

June 15 , 2018

•

Time:

10:00 a.m., Pacific Time

•

Place:

Walters Cultural Arts Center  527 East Main Street Hillsboro, Oregon 97123

TO OUR SHAREHOLDERS:

We are pleased to notify you of and invite you to attend a special meeting of shareholders. At the special meeting, you will be asked to vote on the following matters:

•

approval of the Agreement and Plan of Merger, dated as of March 8, 2018, by and between Heritage Financial Corporation ("Heritage") and Premier Commercial Bancorp ("Premier Commercial") (the "merger agreement"). The merger agreement provides the terms and conditions under which it is proposed that Premier Commercial merge with and into Heritage, as described in the accompanying proxy statement/prospectus;

•

a proposal of the Premier Commercial board of directors to adjourn or postpone the special meeting, if necessary or appropriate to solicit additional proxies in favor of the merger agreement (which we refer to as the "adjournment proposal"); and

•

any other business that may be properly submitted to a vote at the special meeting or any adjournment or postponement of the special meeting.

Only shareholders of record at the close of business on May 2 , 2018 are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. The affirmative vote of the holders of a majority of the outstanding Premier Commercial common shares as of that date is required to approve the merger agreement. The adjournment proposal will be approved if a majority of the votes cast are voted in favor of the proposal.

In connection with the proposed merger, you may exercise dissenters' rights as provided under the Oregon Revised Statutes ("ORS") 60.551 through 60.594.  If you meet all of the requirements under applicable Oregon law, and follow all of its required procedures, you may receive cash in the amount equal to the fair value of your shares. The procedure for exercising your dissenters' rights is summarized under the heading "Dissenters' Rights" in the attached proxy statement/prospectus. The relevant Oregon statutory provisions regarding dissenters' rights are attached to this document as Appendix C.

Premier Commercial's board of directors has unanimously approved the merger agreement, believes that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Premier Commercial and its shareholders, and unanimously recommends that Premier Commercial shareholders vote "FOR" the approval of the merger agreement and "FOR" the adjournment proposal.

Your vote is very important. To ensure that your shares are voted at the special meeting, please  follow the instructions that accompany  your proxy card and  cast your vot by internet, by telephone, or by returning you completed, signed, and dated proxy card  in the enclosed envelope (please allow a minimum of 10 days for your proxy card to be processed).

 

TABLE OF CONTENTS

 

Questions and Answers About the Merger AND THE PREMIER COMMERCIAL SPECIAL MEETING		1
SPECIAL MEETING		1
Summary		5
Risk Factors		12
Risks Related to the Merger		12
Risks Relating to Heritage and Heritage's Business		14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		14
Selected Consolidated Financial Information of Heritage		16
Selected Consolidated Financial Information of Premier Commercial		18
UNAUDITED Pro Forma PER SHARE DATA		20
Market Price Data and Dividend Information		21
Comparative Market Price Information		21
Historical Market Prices and Dividend Information		21
The Special meeting of Premier Commercial Shareholders		23
Voting and Proxy Procedure		23
Proxy Solicitation		25
Security Ownership of Management and Certain Beneficial Owners		25
The Merger		27
General		27
Background of the Merger		27
Recommendation of the Premier Commercial Board of Directors and Reasons of Premier Commercial for the Merger		29
Opinion of Premier Commercial's Financial Advisor		30
Reasons of Heritage for the Merger		41
Conversion of Shares and Exchange of Certificates		41
Regulatory Approvals Required for the Merger		41
Accounting Treatment		42
Interests of Certain Persons in the Merger		42
Method of Effecting the Acquisition		45
Effective Time		45
Declaration and Payment of Dividends and Stock Transfers		46
No Fractional Shares		46
Share Matters		46
Public Trading Markets		46
THE MERGER AGREEMENT		46
The Merger		47
Effective Time and Completion of the Merger		47
Consideration to be Received in the Merger		47
Exchange Procedures		47
Conduct of Business Pending the Merger		49
Agreement Not to Solicit Other Offers		51
Representations and Warranties		52
Special Meeting and Recommendation of Premier Commercial's Board of Directors		53
Conditions to Completion of the Merger		54
Termination of the Merger Agreement		55
Employee and Benefit Plan Matters		56
Indemnification and Continuance of Director and Officer Liability Coverage		57
Expenses		57
Amendment, Waiver and Extension of the Merger Agreement		57
Voting Agreements		57
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER		58
Tax Consequences of the Merger Generally		59
Cash Received In Lieu of a Fractional Heritage Common Share		60
Cash Received on Exercise of Dissenters' Rights		61

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE PREMIER COMMERCIAL

SPECIAL MEETING

The following are some of the questions that you, as a shareholder of Premier Commercial, may have and answers to those questions. These questions and answers, as well as the following summary, are not meant to be a substitute for the information contained in the remainder of this document, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this document. We urge you to read this document in its entirety prior to making any decision as to your Premier Commercial common shares and the merger agreement.

 

If you respond and abstain from voting, your abstention will have the same effect as a vote against approval of the merger agreement but will have no effect on the adjournment proposal.

·  voting by internet at a later time but prior to the special meeting,

· signing and returning a proxy card with a later date,

· delivering a written revocation to Premier Commercial's corporate secretary, or

· attending the special meeting in person and voting by ballot at the special meeting.

Attendance at the special meeting by itself will not automatically revoke your proxy. A revocation or later-dated proxy received by Premier Commercial after the vote is taken at the special meeting will not affect your previously submitted proxy. Premier Commercial's corporate secretary's mailing address is: Corporate Secretary, Premier Commercial Bancorp, 314 East Main Street, Hillsboro, Oregon 97123. If your shares are held in "street name" through a bank or broker, you should contact your bank or broker to change your voting instructions.

 

merger." In order to complete the merger, Heritage and Premier Commercial must first obtain all regulatory approvals, consents and orders required in connection with the merger and the bank merger. Accordingly, the parties must obtain the approval of or waiver by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the approval of the Federal Deposit Insurance Corporation (the "FDIC"), Oregon Division of Finance and Corporate Securities ("Oregon Division") and the Washington State Department of Financial Institutions (the "WDFI"). Applications were filed with the FDIC, Oregon Division and WDFI on March 30, 2018.  The parties expect to submit a waiver request to the Federal Reserve Board in May , 2018.

For further information concerning U.S. federal income tax consequences of the merger, see the section entitled  " Material United States Federal Income Tax Consequences of the Merger" beginning on page 58 .

Q18:  What happens if the merger is not completed?

 

    A21: Premier Commercial Bancorp
    314 East Main Street
    Hillsboro, Oregon 97123
    Attn: Investor Relations
    (503) 693-7500

 

SUMMARY

This summary highlights selected information about the merger but may not contain all of the information that may be important to you. You should carefully read this entire document and the other documents to which this document refers for a more complete understanding of the matters being considered at the special meeting. See the section entitled "Where You Can Find More Information" beginning on page 68 . Unless we have stated otherwise, all references in this document to Heritage are to Heritage Financial Corporation, all references to Premier Commercial are to Premier Commercial Bancorp and all references to the merger agreement are to the Agreement and Plan of Merger, dated as of March 8, 2018, between Heritage and Premier Commercial, a copy of which is attached as Appendix A to this document. In this document, we often refer to the "combined company," which means, following the merger, Heritage and its subsidiaries, including Premier Commercial's subsidiaries. References to "we," "us" and "our" in this document mean Heritage and Premier Commercial together.

The companies

Heritage Financial Corporation
201 Fifth Avenue SW
Olympia, Washington 98501
Attn: Investor Relations
(360) 943-1500

Heritage is a bank holding company incorporated under the laws of the State of Washington and the parent company of Heritage Bank, a state-chartered, FDIC-insured bank with 60 banking offices located in Washington and Oregon. Heritage is subject to regulation by the Federal Reserve Board and Heritage Bank is examined and regulated by the WDFI and the FDIC.  Heritage Bank, a full service commercial bank, does business under the Central Valley Bank name in the Yakima and Kittitas counties of Washington and under the Whidbey Island Bank name on Whidbey Island.  Heritage had total consolidated assets of approximately $4.1 billion, total deposits of approximately $3.4 billion and total consolidated stockholders' equity of approximately $505.3 million at December 31, 2017. Heritage's principal executive offices are located at 201 Fifth Avenue SW, Olympia, Washington 98501 and its telephone number is (360) 943-1500. Heritage trades on the Nasdaq Global Select Market under the symbol "HFWA."

Premier Commercial Bancorp
314 East Main Street
Hillsboro, Oregon 97123
Attn: Investor Relations
(503) 693-7500

Premier Commercial is a bank holding company for Premier Community Bank. Premier Commercial's business activities generally are limited to passive investment activities and oversight of its investment in Premier Community Bank. As a bank holding company, Premier Commercial is subject to regulation by the Federal Reserve Board. Premier Community Bank is examined and regulated by the Oregon Division and by the FDIC. Premier Commercial was formed in 2002 as a holding company for Premier Community Bank which was opened in 1999 by local business people to deliver loan and deposit product solutions through experienced and professional bankers to businesses, nonprofits, professionals, and individuals. Premier Community Bank serves the greater Portland Metropolitan area with four offices in Washington County, one office in Multnomah County, and also serves Yamhill County with an office in Newberg.  Premier Commercial had total consolidated assets of approximately $400.5 million, total deposits of approximately $330.6 million and total consolidated stockholders' equity of approximately $40.0 million at December 31, 2017. Premier Commercial's principal executive offices are located at 314 East Main Street, Hillsboro, Oregon 97123, and its telephone number is (503) 693-7500. Premier Commercial trades on the OTC Pink marketplace under the symbol "PRCB."

The merger (Page 27 )

We propose a merger in which Premier Commercial will merge with and into Heritage and a follow-up merger in which Premier Community Bank will merge with and into Heritage Bank. As a result of the mergers, Premier Commercial will cease to exist as a separate corporation and Premier Community Bank will cease to exist as a separate financial institution. In the merger, Premier Commercial will merge with and into Heritage, with Heritage as the surviving corporation. Immediately following the merger, Premier Commercial's wholly owned subsidiary bank, Premier Community Bank, will merge with and into Heritage's wholly owned subsidiary bank, Heritage Bank, with Heritage Bank as the surviving institution.

Based on the number of Heritage common shares and Premier Commercial common shares outstanding as of May 2 , 2018, Premier Commercial shareholders will collectively own up to approximately 7.8% of the outstanding Heritage common shares after the merger. See the section entitled "The Merger Agreement—Consideration to be Received in the Merger."

 

We expect the merger of Premier Commercial and Heritage to be completed during the quarter ending September 30, 2018.  If the merger is not completed by November 1, 2018, Premier Commercial and Heritage would need to mutually agree to extend the closing date of the merger.

Approval of the merger agreement requires the affirmative vote, in person or by proxy, of a majority of the outstanding Premier Commercial common shares. No vote of Heritage shareholders is required (or will be sought) in connection with the merger.

The merger agreement (Page 46 )

The merger agreement is described beginning on page 46. The merger agreement also is attached as Appendix A to this document. We urge you to read the merger agreement in its entirety because it contains important provisions governing the terms and conditions of the merger.

In the merger, Premier Commercial shareholders will have the right, with respect to each of their Premier Commercial common shares, to receive, as described below, an amount of Heritage common shares equal to the exchange ratio, which is 0.4863. The value of the consideration to be received by Premier Commercial shareholders in the merger will vary with the trading price of Heritage common shares between now and the completion of the merger. See "The Merger Agreement-Consideration to be Received in the Merger."

Based on the number of Heritage common shares and Premier Commercial common shares (inclusive of shares of restricted stock) outstanding as of May 2 , 2018, Premier Commercial shareholders will collectively own approximately 7.8% of the outstanding Heritage common shares after the merger. See the section entitled "The Merger Agreement—Consideration to be Received in the Merger."

The Premier Commercial board of directors believes the merger is in the best interests of Premier Commercial and the Premier Commercial shareholders. The Premier Commercial board of directors unanimously recommends that Premier Commercial shareholders vote "FOR" the approval of the merger agreement. For the factors considered by the Premier Commercial board of directors in reaching its decision to approve the merger agreement and making its recommendation, see  "The Merger—Recommendation of the Premier Commercial Board of Directors and Reasons of Premier Commercial for the Merger."

In connection with the merger, Premier Commercial's financial advisor, Sandler O'Neill & Partners, L.P. or Sandler O'Neill, delivered a written opinion, dated March 8, 2018, to the Premier Commercial board of directors as to the fairness, from a financial point of view and as of such date, to the holders of Premier Commercial common shares of the exchange ratio in the merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Sandler O'Neill in preparing the opinion, is attached as Appendix B to this proxy statement/prospectus.  You should read the opinion and the description of Sandler O'Neill's opinion contained in this proxy statement/prospectus carefully in their entirety.

Sandler O'Neill's opinion speaks only as of the date of the opinion.  The opinion of Sandler O'Neill does not reflect any developments that may have occurred or may occur after the date of its opinion and prior to the completion of the merger.  The opinion was for the information of, and was directed to, the Premier Commercial board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion does not constitute a recommendation to the Premier Commercial board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Premier Commercial common shares or any shareholder of any other person as to how to vote in connection with the merger or any other matter.  Sandler O'Neill's opinion does not address the underlying business decision of Premier Commercial to engage in the merger or enter into the merger agreement, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Premier Commercial or the effect of any other transaction in which Premier Commercial might engage.

 

Share price information (Page 21 )

Heritage common shares are traded on Nasdaq under the symbol "HFWA." Premier Commercial common shares are traded on the OTC Pink marketplace under the symbol "PRCB."

The following table sets forth (a) the last reported sale prices per share of Heritage common shares on (i) March 8, 2018, the last trading day preceding public announcement of the signing of the merger agreement and (ii) [·], 2018, the last practicable date prior to the mailing of this proxy statement/prospectus and (b) the equivalent price per Premier Commercial share, determined by multiplying 0.4863 exchange ratio by such prices.

Premier Commercial's directors and executive officers have interests in the merger that differ from, or are in addition to, your interests in the merger (Page 42 )

You should be aware that some of the directors and executive officers of Premier Commercial have interests in the merger that are different from, or are in addition to, the interests of Premier Commercial shareholders. These interests may create potential conflicts of interest. Premier Commercial's board of directors was aware of and considered these interests, among other matters, when making its decisions to approve the merger agreement and in recommending that Premier Commercial shareholders vote in favor of approving the merger agreement. These include the following:

·	Robert Ekblad and Jason Wessling  hold Premier Commercial restricted stock awards that will vest as part of the merger and such executive officers will receive the merger consideration for such restricted stock awards;

·

Rick Roby, Frederick Johnson and Robert Ekblad have entered into transitional employment agreements with Heritage Bank that will be effective upon completion of the merger. Mr. Roby's agreement is for a 90 day period following the effective time of the merger, Mr. Johnson's is for a period from the effective time of the merger until approximately six months after core system conversion is completed or April 30, 2019, whichever occurs first,  and Mr. Ekblad's is for a period from the effective time of the merger until thirty days after the core system conversion is completed or March 31, 2019, whichever occurs first;

·

Rick Roby, Frederick Johnson, Robert Ekblad and Jason Wessling will receive change in control payments of $783,945, $603,980, $580,060 and $110,000, respectively, subject to reduction in the case of Mr.Ekblad to avoid adverse tax consequences and penalties, as provided in their existing employment agreements;

·	Frederick Johnson and Robert Ekblad are eligible to receive integration bonuses, in the amount of $50,000 each, provided they remain employed through the end of their respective terms;

·	Robert Ekblad will receive enhanced benefits under the 2015 Premier Community Bank Salary Continuation Plan;

·

Premier Commercial's directors and executive officers will receive indemnification from Heritage for their past acts and omissions in their capacities as directors and officers as well as continuing insurance coverage with respect thereto for a period of six years after completion of the merger, to the fullest extent permitted under Premier Commercial's organizational documents and to the fullest extent otherwise permitted by law; and

·	Each director and executive officer has entered into a voting agreement in favor of Heritage agreeing to vote his or her Premier Commercial common shares for approval of the merger agreement and approval of the adjournment proposal.

For a more complete description of these interests, see "The Merger – Interests of Certain Persons in the Merger" on page 42.

Material United States federal income tax considerations of the merger (Page 58 )

The merger is expected to qualify for U.S. federal income tax purposes as a "reorganization" within the meaning of Section 368(a) of the Code. As a result, we expect that Premier Commercial shareholders receiving Heritage common shares in

 

the merger will not recognize gain or loss as a result of the merger, except to the extent they receive cash in lieu of a fractional Heritage common share or as part of the merger consideration.

For further information concerning U.S. federal income tax consequences of the merger, please see "Material United States Federal Income Tax Consequences of the Merger" beginning on page 58 .

Tax matters are very complicated and the consequences of the merger to any particular Premier Commercial shareholder will depend on that shareholder's particular facts and circumstances. Premier Commercial shareholders are urged to consult their own tax advisors to determine their own tax consequences from the merger.

Following the merger, you will be entitled to receive any dividends that Heritage pays on its common shares (Page 21 ).

After the merger, you will receive dividends, if any, that Heritage pays on its common shares. During 2017, Heritage has paid regular quarterly cash dividends of $0.12 per share on February 23, 2017, $0.13 per share on May 24, 2017, $0.13 per share on August 24, 2017, and $0.13 per share on November 22, 2017.  In addition, Heritage paid a special cash dividend of $0.10 per share on November 22, 2017.  Heritage paid a regular quarterly cash dividend of $0.15 per share on February 21, 2018.

Accounting treatment (Page 42 )

The merger will be accounted for as an acquisition of Premier Commercial by Heritage under the acquisition method of accounting in accordance with U.S. generally accepted accounting principles.

In order to complete the merger, we must first obtain certain regulatory approvals (Page 54 )

In order to complete the merger, Heritage and Premier Commercial must first obtain all regulatory approvals, consents or waivers required in connection with the merger and the bank merger. Accordingly, the parties must obtain the approval of or waiver by the Federal Reserve Board, the approval of the FDIC and the approval of the Oregon Division and the WDFI. The U.S. Department of Justice may review the impact of the merger and the bank merger on competition. Applications with the FDIC, the Oregon Division and the WDFI were filed on March 30 , 2018.   The parties expect to submit a  waiver request to the Federal Reserve Board in May , 2018.

There can be no assurance as to whether all regulatory approvals will be obtained or as to the dates of the approvals. There also can be no assurance that the regulatory approvals received will not contain a condition or requirement that results in a failure to satisfy the conditions to closing set forth in the merger agreement. See the section entitled "The Merger Agreement—Conditions to Completion of the Merger" on page 54 .

Premier Commercial shareholders have dissenters' rights (Page 66 )

Premier Commercial shareholders have the right under Oregon law to dissent from the merger, obtain the fair value of their Premier Commercial common shares, and receive cash equal to the fair value of their Premier Commercial common shares plus accrued interest (without giving effect to the merger) instead of receiving the merger consideration. To exercise dissenters' rights, among other things, a Premier Commercial shareholder must (i) provide notice of dissent to Premier Commercial that complies with the requirements of Oregon law prior to the vote of its shareholders on the merger agreement with respect to all shares beneficially owned by such shareholder, and (ii) not vote in favor of the merger agreement. Submitting a properly signed proxy card that is received prior to the vote at the special meeting (and is not properly revoked) that does not direct how the shares of Premier Commercial represented by proxy are to be voted will constitute a vote in favor of the merger agreement and a waiver of such shareholder's statutory dissenters' rights.

If you dissent from the merger agreement and you satisfy the other requirements of Oregon law relating to the exercise of dissenter's  rights,  then your Premier Commercial common shares will not be exchanged for Heritage common shares in the merger, and your only right will be to receive the fair value of your Premier Commercial common shares, plus accrued interest, pursuant to the settlement procedures under Oregon law or by judicial appraisal if you are unable to agree. The appraised value may be more or less than the consideration you would receive under the terms of the merger agreement, and will be based upon the value of Premier Commercial common shares without giving effect to the merger. If you exercise dissenters' rights, any cash you receive for your Premier Commercial common shares that results in a gain or loss will be immediately recognizable for federal income tax purposes. You should be aware that submitting a signed proxy card without indicating a vote with respect to the merger will be deemed a vote "FOR" the merger agreement and a waiver of your dissenters' rights. A vote "AGAINST" the merger agreement does not dispense with the other requirements to exercise dissenters' rights under Oregon law.

 

A shareholder electing to dissent from the merger agreement must strictly comply with all procedures required under Oregon law. These procedures are described more fully beginning on page  66 of this proxy statement/prospectus, and a copy of the relevant Oregon statutory provisions regarding dissenters' rights is included as Appendix C to this proxy statement/prospectus.

Additional conditions to consummation of the merger (Page 54 )

In addition to the regulatory approvals, the consummation of the merger depends on a number of conditions being met, including, among others:

·	approval of the merger agreement by the holders of a majority of all outstanding Premier Commercial common shares;

·	authorization of the Heritage common shares to be issued in the merger for listing on Nasdaq;

·	the effectiveness of a registration statement on Form S-4 with the SEC in connection with the issuance of Heritage common shares in the merger;

·	absence of any order, injunction, decree or law preventing or making illegal completion of the merger or the bank merger;

·	receipt by each party of an opinion from such party's tax counsel that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes;

·	accuracy of the representations and warranties of Premier Commercial and Heritage, subject to the standards set forth in the closing conditions of the merger agreement;

·	performance in all material respects by Premier Commercial and Heritage of all obligations required to be performed by either of them under the merger agreement;

·	dissenting shares shall be less than 10% of the issued and outstanding Premier Commercial common shares; and

·	receipt of certain third-party consents by Premier Commercial.

Where the law permits, either Heritage or Premier Commercial could elect to waive a condition to its obligation to complete the merger although that condition has not been satisfied. We cannot be certain when (or if) the conditions to the merger will be satisfied or waived or that the merger will be completed.

In addition, after Premier Commercial's shareholders have adopted the merger agreement, we may not amend the merger agreement to reduce the amount or change the form of consideration to be received by Premier Commercial shareholders in the merger without the approval of Premier Commercial shareholders as required by law.

We may decide not to complete the merger (Page 55 )

Premier Commercial and Heritage, by mutual consent, can agree at any time not to complete the merger, even if the shareholders of Premier Commercial have voted to approve the merger agreement. Also, either party can decide, without the consent of the other, not to complete the merger in a number of other situations, including:

·

if any governmental entity that must grant a required regulatory approval of the merger or the bank merger has denied such approval and such denial has become final and nonappealable, unless the denial is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of that party set forth in the merger agreement;

·	if any governmental entity of competent jurisdiction has issued a final nonappealable order, injunction or decree enjoining or otherwise prohibiting or making illegal the consummation of the merger or the bank merger;

·	failure to complete the merger by November 1, 2018, unless the failure of the closing to occur by that date is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants or agreements of that party;

 

·

if the other party has breached any of its covenants, agreements, representations or warranties contained in the merger agreement based on the closing condition standards set forth in the merger agreement, and the party seeking to terminate is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement, and the breach is not cured within thirty (30) days following written notice to the party committing the breach, or which breach, by its nature, cannot be cured within such thirty (30) day period;

·

if the approval of the shareholders of Premier Commercial contemplated by the merger agreement is not obtained by reason of the failure to obtain the vote required at the Premier Commercial special meeting, except this right may not be exercised by Premier Commercial if Premier Commercial or its board of directors has committed an act that would entitle Heritage to terminate the merger agreement and receive the termination fee specified in the merger agreement; and

·

if the Heritage average closing price is less than $25.50 and Heritage's common stock underperforms the KBW Regional Bank Index by more than 20% during the period commencing on December 8, 2017 and ending on the fifth trading day immediately prior to the closing date.  If Premier Commercial elects to terminate the merger agreement, Heritage would have the option to avoid the termination by adjusting the exchange ratio, or providing a cash component, so that the value of the merger consideration is equal to $12.40 based upon the Heritage average closing price.

Heritage, without the consent of Premier Commercial, can terminate:

·	if the board of directors of Premier Commercial fails to recommend to its shareholders the approval of the merger agreement, or adversely changes, or publicly announces its intention to adversely change its recommendation.

Premier Commercial, without the consent of Heritage, can terminate:

·	prior to obtaining shareholder approval in order to enter into an agreement relating to a superior proposal; provided, however, that Premier Commercial has not materially breached the merger agreement provisions outlined in "The Merger Agreement—Agreement Not to Solicit Other Offers" on page 51 .

Under some circumstances, Premier Commercial will be required to pay a termination fee to Heritage if the merger agreement is terminated (Page 55)

Premier Commercial must pay Heritage a termination fee of $3.45 million if:

·

Heritage terminates the merger agreement as a result of: (i) the Premier Commercial board of directors failing to recommend the approval of the merger agreement or adversely changing or publicly announcing its intention to adversely change its recommendation and the Premier Commercial shareholders failing to approve the merger agreement; (ii) Premier Commercial breaching its nonsolicitation or related obligations as provided in the merger agreement; or (iii) Premier Commercial refuses to call or hold the special meeting for a reason other than that the merger agreement has been previously terminated;

·

Premier Commercial terminates the merger agreement prior to obtaining shareholder approval in order to enter into an agreement relating to a superior proposal; provided, however, that Premier Commercial has not materially breached its nonsolicitation and related obligations as provided in the merger agreement; and

·

if the merger agreement is terminated by either party as a result of the failure of Premier Commercial's shareholders to approve the merger agreement and if, prior to such termination, there is publicly announced a proposal for a tender or exchange offer, for a merger or consolidation or other business combination involving Premier Commercial or Premier Community Bank or for the acquisition of a majority of the voting power in, or a majority of the fair market value of the business, assets or deposits of, Premier Commercial or Premier Community Bank and, within one year of the termination, Premier Commercial or Premier Community Bank either enters into a definitive agreement with respect to that type of transaction or consummates that type of transaction.

Comparison of shareholder rights (Page 64 )

The conversion of your Premier Commercial common shares into the right to receive Heritage common shares in the merger will result in differences between your rights as a Premier Commercial shareholder, which are governed by the Oregon Business Corporation Act ("OBCA") and Premier Commercial's Articles of Incorporation and Bylaws, and your rights as a

 

Heritage shareholder, which are governed by the Washington Business Corporation Act ("WBCA") and Heritage's Restated Articles of Incorporation and Amended and Restated Bylaws.

The special meeting (Page 23 )

Meeting Information and Vote Requirements

The special meeting of Premier Commercial's shareholders will be held on Friday, June 15 , 2018, at 10:00 a.m. , Pacific Time , at the Walters Cultural Arts Center , located at 527 East Main Street , Hillsboro, Oregon 97123 unless adjourned or postponed. At the special meeting, Premier Commercial's shareholders will be asked to:

·

approve the merger agreement; and

·

approve the adjournment proposal.

Shareholders will also be asked to act on any other business that may be properly submitted to a vote at the special meeting or any adjournments or postponements of the special meeting.

You may vote at the special meeting if you owned Premier Commercial common shares as of the close of business on May 2 , 2018. You may cast one vote for each Premier Commercial common share you owned at that time. Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding Premier Commercial common shares. If you mark "ABSTAIN" on your proxy, or fail to submit a proxy and fail to vote in person at the Premier Commercial special meeting or if your shares are held in street name and you fail to instruct your bank or broker how to vote with respect to the merger agreement, it will have the same effect as a vote "AGAINST" the merger agreement.

Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast at the special meeting. If you mark "ABSTAIN" on your proxy, or fail to submit a proxy and fail to vote in person at the special meeting or if your shares are in street name and you fail to instruct your bank or broker how to vote with respect to the adjournment proposal, it will have no effect on such proposal.

 

RISK FACTORS

By voting in favor of the merger agreement, you will be choosing to invest in the common shares of Heritage as combined with Premier Commercial. An investment in the combined company's common shares involves a high degree of risk. In addition to the other information included in this proxy statement/prospectus, including the matters addressed in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" on page 14 , you should carefully consider the matters described below in determining whether to vote in favor of approval of the merger agreement.

Risks Related to the Merger

Because the market price of Heritage common shares will fluctuate, Premier Commercial shareholders cannot be sure of the value of the merger consideration they will receive.

Upon completion of the merger, each Premier Commercial common share will be converted into the right to receive merger consideration consisting of a number of Heritage common shares equal to the exchange ratio pursuant to the terms of the merger agreement. The number of Heritage common shares to be received by a Premier Commercial shareholder will be determined based on a fixed exchange ratio of 0.4863 Heritage common shares for each Premier Commercial common share. Accordingly, the value of the merger consideration to be received by the Premier Commercial shareholders will be based on the value of the Heritage common shares. The value of the Heritage common shares to be received by Premier Commercial shareholders in the  merger may vary from the value as of the date we announced the merger, the date that this document was mailed to Premier Commercial shareholders, the date of the Premier Commercial special meeting, and the closing date of the merger. Any change in the market price of Heritage common shares prior to completion of the merger will affect the value of the merger consideration that Premier Commercial shareholders will receive upon completion of the merger. Accordingly, at the time of the Premier Commercial special meeting, Premier Commercial shareholders will not know or be able to calculate the value of the merger consideration they would receive upon completion of the merger. Share price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of Heritage and Premier Commercial. Premier Commercial shareholders should obtain current market quotations for Heritage common shares before voting their shares at the Premier Commercial special meeting.

Premier Commercial's shareholders will have less influence as shareholders of Heritage than as shareholders of Premier Commercial.

Premier Commercial's shareholders currently have the right to vote in the election of the board of directors of Premier Commercial and on other matters affecting Premier Commercial. Following the merger, the shareholders of Premier Commercial as a group will hold an ownership interest of  approximately 7.8% of Heritage. When the merger occurs, each Premier Commercial shareholder will become a shareholder of Heritage with a percentage ownership of the combined company much smaller than such shareholder's percentage ownership of Premier Commercial. Because of this, Premier Commercial's shareholders will have less influence on the management and policies of Heritage than they now have on the management and policies of Premier Commercial.

If Heritage is unable to integrate the combined operations successfully, its business and earnings may be negatively affected.

The merger involves the integration of companies that have previously operated independently. Successful integration of Premier Commercial's operations will depend primarily on Heritage's ability to consolidate operations, systems and procedures and to eliminate redundancies and costs. No assurance can be given that Heritage will be able to integrate its post-merger operations without encountering difficulties including, without limitation, the loss of key employees and customers, the disruption of the ongoing business of Heritage or Premier Commercial or possible inconsistencies in standards, controls, procedures and policies. Anticipated economic benefits of the merger are projected to come from various areas that Heritage's management has identified through the due diligence and integration planning process. The elimination and consolidation of duplicate tasks are projected to result in annual cost savings. If Heritage has difficulties with the integration, it might not fully achieve the economic benefits it expects to result from the merger. In addition, Heritage may experience greater than

 

expected costs or difficulties relating to the integration of the business of Premier Commercial, and/or may not realize expected cost savings from the merger within the expected time frame.

The fairness opinion of Premier Commercial's financial advisor received by Premier Commercial's board of directors prior to signing of the merger agreement does not reflect changes in circumstances since the signing of the merger agreement.

Changes in the operations and prospects of Heritage or Premier Commercial or general market and economic conditions, and other factors that may be beyond the control of Heritage and Premier Commercial, may alter the value of Heritage or Premier Commercial or the prices of Heritage common shares or Premier Commercial common shares by the time the merger is completed. The opinion of Premier Commercial's financial advisor, dated March 8, 2018, does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. For a description of the opinion of Premier Commercial's financial advisor, please refer to "The Merger—Opinion of Premier Commercial's Financial Advisor." For a description of the other factors considered by the board of directors of Premier Commercial in determining to approve the merger agreement, please refer to "The Merger—Recommendation of the Premier Commercial Board of Directors and Reasons of Premier Commercial for the Merger."

The merger agreement limits Premier Commercial's ability to pursue alternatives to the merger.

The merger agreement contains non-solicitation provisions that, subject to limited exceptions, limit Premier Commercial's ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of Premier Commercial. Although Premier Commercial's board of directors is permitted to take certain actions in connection with the receipt of a competing acquisition proposal if it determines in good faith that the failure to do so would violate its fiduciary duties, taking such actions could, and other actions (such as withdrawing or modifying its recommendation to Premier Commercial shareholders that they vote in favor of approval of the merger agreement) would, entitle Heritage to terminate the merger agreement and receive a termination fee of $3.45 million. See the section entitled "The Merger Agreement—Termination of the Merger Agreement" on page 55 . These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Premier Commercial from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Premier Commercial than it might otherwise have proposed to pay. The payment of the termination fee could also have an adverse impact on Premier Commercial's financial condition.

Premier Commercial will be subject to business uncertainties and contractual restrictions while the merger is pending.

Heritage and Premier Commercial have operated and, until the completion of the merger, will continue to operate, independently. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Premier Commercial and consequently on Heritage. These uncertainties may impair Premier Commercial's ability to attract, retain or motivate key personnel until the merger is consummated, and could cause customers and others that deal with Premier Commercial to seek to change existing business relationships with Premier Commercial. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles with Heritage. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Heritage, Heritage's business following the merger could be harmed. In addition, the merger agreement restricts Premier Commercial from making certain acquisitions and taking other specified actions until the merger occurs without the consent of Heritage. These restrictions may prevent Premier Commercial from pursuing attractive business opportunities that may arise prior to the completion of the merger. See "The Merger Agreement—Conduct of Businesses Pending the Merger."

In deciding how to vote on the approval of the merger agreement, you should be aware that Premier Commercial's directors and executive officers might have interests in the merger that are different from, or in addition to, the interests of Premier Commercial shareholders generally. See the section entitled "The Merger—

 

Interests of Certain Persons in the Merger." Premier Commercial's board of directors was aware of these interests and considered them when it recommended approval of the merger agreement to the Premier Commercial shareholders.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on Heritage following the merger.

Before the merger and the bank merger may be completed, Heritage and Premier Commercial must obtain approvals from the FDIC, the Oregon Division and the WDFI, and a waiver from the Federal Reserve Board. Other approvals, waivers or consents from regulators may also be required. An adverse development in either party's regulatory standing or other factors could result in an inability to obtain approvals or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. While Heritage and Premier Commercial do not currently expect that any such conditions or changes will be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of Heritage following the merger, any of which might have an adverse effect on Heritage following the merger. Heritage is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger impose any unduly burdensome condition upon Heritage following the merger or Heritage Bank following the bank merger. See "The Merger—Regulatory Approvals Required for the Merger" and "The Merger Agreement – Conditions to Completion of the Merger."

The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may cause the price of Heritage common shares or Premier Commercial common shares to decline.

Risks Relating to Heritage and Heritage's Business

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document, including information included or incorporated by reference in this document, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Heritage and Premier Commercial intend for such forward-looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the merger, including

 

future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the merger; (ii) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; (iii) statements about expectations regarding the timing of the closing of the merger and the ability to obtain regulatory approvals on a timely basis; and (iv) other statements identified by words such as "expects," "projects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "possible,"  "potential," "strategy," or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of Heritage's and Premier Commercial's respective management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and beyond Heritage's and Premier Commercial's control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

·	our ability to successfully integrate any assets, liabilities, customers, systems, and personnel;

·	the required regulatory approvals for the merger and bank merger and/or the approval of the merger agreement by the shareholders of Premier Commercial might not be obtained or other conditions to the completion of the merger set forth in the merger agreement might not be satisfied or waived;

·	the growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected;

·	operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected;

·	adverse governmental or regulatory policies may be enacted;

·	the interest rate environment may change, causing margins to compress and adversely affecting net interest income;

·	the global financial markets may experience increased volatility;

·	we may experience adverse changes in our credit rating;

·	we may experience competition from other financial services companies in our markets; and

·	an economic slowdown may adversely affect credit quality and loan originations.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed under "Risk Factors" beginning on page  12 and in Heritage's reports filed with the SEC.

For any forward-looking statements made in this proxy statement/prospectus or in any documents incorporated by reference into this proxy statement/prospectus, Heritage and Premier Commercial claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this proxy statement/prospectus or the date of the applicable document incorporated by reference in this proxy statement/prospectus. Heritage and Premier Commercial do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to Heritage, Premier Commercial or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement/prospectus.

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HERITAGE

Heritage is providing the following information to aid you in your analysis of the financial aspects of the merger. Heritage derived the information as of and for each of the five years ended December 31, 2013 through December 31, 2017 from its historical audited consolidated financial statements for these fiscal years. The consolidated financial information contained herein is the same historical information that Heritage has presented in its prior filings with the SEC.

This information is only a summary, and you should read it in conjunction with Heritage's consolidated financial statements and notes thereto contained in Heritage's 2017 Annual Report on Form 10-K, which has been incorporated by reference into this document. See the section entitled "Where You Can Find More Information" on page 68 .

____________________

(1)	Loans receivable, net of deferred costs divided by deposits.

(2)	At December 31, 2017, 2016, 2015, 2014 and 2013, $1.9 million, $2.8 million, $1.3 million, $1.6 million and $1.7 million of nonaccrual loans were guaranteed by government agencies, respectively.

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF PREMIER COMMERCIAL

Premier Commercial is providing the following information to aid you in your analysis of the financial aspects of the merger. Premier Commercial derived the information as of and for each of the five years ended December 31, 2013 through December 31, 2017 from its historical audited consolidated financial statements for these fiscal years.

This information is only a summary, and you should read it in conjunction with Premier Commercial's consolidated financial statements and notes thereto contained in Premier Commercial's 2017 Annual Report.

(1)	Total loans receivable, net plus loans held for sale divided by deposits.

 

 

UNAUDITED PRO FORMA PER SHARE DATA

The following table sets forth for the Heritage common shares and the Premier Commercial common shares certain historical, pro forma and pro forma equivalent per share financial information. The pro forma and pro forma equivalent per share information gives effect to the merger as if the transaction had been effective on the date presented, in the case of book value data, and as if the transaction had been effective at the beginning of the period shown below, in the case of the earnings and dividend data. The pro forma information in the table assumes that the merger is accounted for under the acquisition method of accounting. The information in the following table is based on, and should be read together with, the historical financial information that Heritage has presented in prior filings with the SEC. See "Where You Can Find More Information" beginning on page 68 .

The pro forma financial information is not necessarily indicative of results that would have occurred had the merger been completed on the date indicated or that may be obtained in the future.

MARKET PRICE DATA AND DIVIDEND INFORMATION

Comparative Market Price Information

The following table presents trading information for Heritage common shares on Nasdaq and Premier Commercial common shares on the OTC Pink marketplace on March 8, 2018, the last trading day prior to the announcement of the signing of the merger agreement, and on [·], 2018, the last practical trading day for which information was available prior to the date of the printing of this proxy statement/prospectus.

You should obtain current market quotations for Heritage common shares. The market price of Heritage common shares will likely fluctuate between the date of this document and the date on which the merger is completed and after the merger. Because the market price of Heritage common shares is subject to fluctuation, the value of the Heritage common shares that you may receive in the merger may increase or decrease prior to and after the merger.

Historical Market Prices and Dividend Information

Heritage common shares are listed on Nasdaq under the symbol "HFWA." Premier Commercial common shares are listed on the OTC Pink marketplace under the symbol "PRCB." The following table sets forth, for the calendar quarters indicated, the high and low sales prices per Heritage common share as reported on Nasdaq and the Premier Commercial common shares as reported on the OTC Pink marketplace, and the Heritage quarterly cash dividends per share declared.  Premier Commercial has not paid any dividends.

______________________

*Includes Heritage special dividend of $0.10, $0.25 and $0.10 per share for the quarters ended December 31, 2017, 2016 and 2015, respectively.

 

As a bank holding company, Premier Commercial's ability to pay dividends is subject to the guidelines of the Federal Reserve Board regarding capital adequacy and dividends. The Federal Reserve Board's policy is that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. Under Oregon law, Premier Commercial is prohibited from paying a dividend if, after making such dividend payment, Premier Commercial would be unable to pay its debts as they become due in the usual course of business, or if its total liabilities, plus the amount that would be needed, in the event it were to be dissolved at the time of the dividend payment, to satisfy preferential rights on dissolution of holders of preferred shares ranking senior in right of payment to the capital stock on which the applicable distribution is to be made would exceed its total assets.

The primary source for dividends paid to Premier Commercial shareholders is dividends paid to it from Premier Community Bank.  There are regulatory restrictions on the ability of Premier Community Bank to pay dividends.  Under federal regulations, the dollar amount of dividends Premier Community Bank may pay depends upon its capital position and recent net income.  Generally, if Premier Community Bank satisfies its regulatory capital requirements, it may make dividend payments up to the limits prescribed under state law and FDIC regulations.

As of May 2 , 2018 there were  34,027,616 outstanding Heritage common shares held by approximately  1,401 shareholders of record. As of May 2 , 2018, there were  5,857,806 outstanding Premier Commercial common shares held by approximately  151 holders of record. Premier Commercial has not paid any dividends to its shareholders.

 

 

 

THE SPECIAL MEETING OF PREMIER COMMERCIAL SHAREHOLDERS

This proxy statement/prospectus constitutes the proxy statement of Premier Commercial for use at the special meeting of Premier Commercial's shareholders to be held on  Friday, June 15  , 2018, at  10:00 a.m. Pacific Time at the Waters Cultural Arts Center   located at 527 East Main Street , Hillsboro, Oregon 97123 and any adjournments thereof.

At the special meeting, the shareholders of Premier Commercial will consider and vote upon (i) approval of the merger agreement; and (ii) approval of the adjournment proposal.

Pursuant to the merger agreement, Premier Commercial will merge with and into Heritage, and Premier Commercial's wholly owned subsidiary, Premier Community Bank, will merge with and into Heritage Bank. We expect to complete the merger of Premier Commercial with and into Heritage during the quarter ending September 30, 2018.

When we complete the merger, Premier Commercial shareholders will receive Heritage common shares as merger consideration for each Premier Commercial common share they own, as described in "The Merger Agreement—Consideration to be Received in the Merger" on page 47 .

Premier Commercial has supplied all information contained in this proxy statement/prospectus with respect to Premier Commercial. Heritage has supplied all information contained in this proxy statement/prospectus with respect to Heritage.

This proxy statement/prospectus is first being provided to shareholders of Premier Commercial on or about [●], 2018.

Voting and Proxy Procedure

Shareholders Entitled to Vote.

The close of business on May 2 , 2018 was the record date for determining Premier Commercial shareholders entitled to receive notice of and to vote at the special meeting. On the record date, there were 5,857,806 Premier Commercial common shares outstanding held by  151   holders of record. Premier Commercial has no other class of voting securities outstanding. Each holder of Premier Commercial common shares is entitled to one vote for each Premier Commercial common share in that holder's name on Premier Commercial's books as of the record date on any matter submitted to the vote of the Premier Commercial shareholders at the special meeting.

If you are a beneficial owner of Premier Commercial common shares held by a broker, bank or other nominee (i.e., in "street name"), you will need proof of ownership to be admitted to the special meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote your Premier Commercial common shares held in street name in person at the special meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Voting Your Shares.

Holders of record who receive this proxy statement/prospectus and proxy card from Premier Commercial's transfer agent (OTR, Inc.) can vote your shares using one of the following methods:

·	Vote by internet by following the instructions that accompany your proxy card; or

·	Complete and return a written proxy card (please allow a minimum of 10 days for your proxy card to be processed) .

 

 

 

 

You can also vote in person at the special meeting, and submitting your voting instructions by any of the methods mentioned above will not affect your right to attend the special meeting and vote.

Quorum.

The presence, in person or by proxy, of at least a majority of the total number of outstanding Premier Commercial common shares entitled to vote is necessary to constitute a quorum at the special meeting. Abstentions and broker non-votes will be counted as shares present and entitled to vote at the special meeting for purposes of determining the existence of a quorum.

Proxies; Proxy Revocation Procedures.

The Premier Commercial board of directors solicits proxies so that each shareholder has the opportunity to vote on the merger agreement and any other proposal to be considered at the special meeting. When a proxy card is returned properly signed and dated, the shares represented thereby will be voted in accordance with the instructions on the proxy card. If a shareholder of record attends the special meeting and wishes to vote in person, he or she may vote by ballot. Where no instructions are indicated, proxies will be voted in accordance with the recommendations of the Premier Commercial board of directors. The board recommends a vote:

·	FOR approval of the merger agreement; and

·	FOR the adjournment proposal.

Premier Commercial shareholders may revoke a proxy at any time by: (i) sending written notice of revocation to the corporate secretary of Premier Commercial prior to the special meeting; (ii) executing and delivering a proxy for the special meeting bearing a later date; or (iii) attending the special meeting and voting in person. Attendance at the special meeting will not automatically revoke a proxy, but a shareholder in attendance may request a ballot and vote in person thereby revoking a prior granted proxy.

Written notices of revocation or other communications about revoking your proxy should be addressed to Premier Commercial Bancorp, Attn: Corporate Secretary, 314 East Main Street, Hillsboro, Oregon 97123.

Proxies that do not provide the proxy holders with direction in voting on the merger agreement or with respect to the adjournment proposal will be voted in favor of the merger agreement and the adjournment proposal, in accordance with the recommendation of the board of directors of Premier Commercial. Premier Commercial shareholders who provide no instruction with respect to the merger agreement will not be eligible to assert their dissenters' rights.

Vote Required; Voting Agreements.

The approval of the merger agreement will require the affirmative vote, in person or by proxy, of a majority of the outstanding Premier Commercial common shares. The directors and executive officers of Premier Commercial and their affiliates hold 14.7% of the outstanding shares entitled to vote.

The directors and executive officers of Premier Commercial have entered into voting agreements with Heritage with respect to the Premier Commercial common shares they own, in which they have agreed, among other things, to vote, or cause to be voted, all of their Premier Commercial common shares in favor of the merger

 

agreement. See the section entitled "The Merger Agreement—Voting Agreements" on page 57 . Because approval of the merger agreement requires the affirmative vote of a majority of the outstanding Premier Commercial common shares, failure to vote, abstentions and broker non-votes will have the same effect as a vote against the merger agreement.

The adjournment proposal will be approved if a majority of the votes cast at the special meeting are voted in favor of the adjournment proposal. The failure to vote, abstentions and broker non-votes on the adjournment proposal will have no effect on such proposal.

Proxy Solicitation

The accompanying proxy is being solicited by the board of directors of Premier Commercial. Premier Commercial will bear the entire cost of solicitation of proxies from holders of its common shares. In addition to the solicitation of proxies by mail, certain officers, directors and employees of Premier Commercial, without extra remuneration, may also solicit proxies in person, by telephone, facsimile or otherwise. Premier Commercial will pay printing, postage and mailing costs of the proxy statement/prospectus. All other costs, including legal and accounting fees, shall be borne by the party incurring such costs.

Security Ownership of Management and Certain Beneficial Owners

The following table sets forth the beneficial ownership of Premier Commercial common shares as of March  8, 2018 by (i) each director of Premier Commercial, (ii) Premier Commercial's executive officers, (iii) all directors and executive officers of Premier Commercial as a group, and (iv) each person or entity known by Premier Commercial to beneficially own more than 5% of the outstanding Premier Commercial common shares.  Unless otherwise specified, the address of each listed shareholder is c/o Premier Commercial Bancorp, 314 East Main Street, Hillsboro, Oregon 97123.

The percentage of beneficial ownership is calculated in relation to the 5,857,806 Premier Commercial common shares that were issued and outstanding as of March 8, 2018, which includes shares of unvested  restricted stock.  Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities. There are no Premier Commercial common shares issuable pursuant to the exercise of stock options that are exercisable within 60 days of March 8, 2018.  The table includes unvested restricted stock awards as shares subject to those awards are entitled to be voted during the vesting period. Unless otherwise indicated, and subject to the voting agreements entered into with Heritage in connection with the merger (see "The Merger Agreement—Voting Agreements"), to Premier Commercial's knowledge, the persons or entities identified in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them.

 

 

 

 

 

THE MERGER

General

The boards of directors of Heritage and Premier Commercial have unanimously approved the merger agreement providing for the merger of Premier Commercial with and into Heritage, with Heritage being the surviving entity, and the merger of Premier Community Bank with and into Heritage Bank, with Heritage Bank being the surviving institution. We expect to complete the merger of Premier Commercial with and into Heritage during the quarter ending September 30, 2018.

Background of the Merger

From time to time, the Premier Commercial board of directors assesses the economic, regulatory and competitive conditions in which Premier Commercial operates, as well as its long-term business strategy and objectives. During recent years, Premier Commercial's board of directors has reviewed and assessed strategic opportunities and challenges and has considered various strategic options potentially available to Premier Commercial, all with the goals of continuing to best serve its customers and communities and increasing shareholder value.

During the past year, Premier Commercial's board of directors had grown increasingly concerned about the challenges facing the community banking industry in general and, in some cases, Premier Commercial specifically.  In particular, the cost and burden of complying with increased and considerable regulatory oversight, the need for scale to offset operating expenses and strong competition for loans and deposits in an environment of persistently low interest rates and tight interest margins.  In addition, the Premier Commercial board of directors noted that stock market trading valuations and merger and acquisition valuations in the commercial banking industry had increased meaningfully over the past few years. 

In the summer of 2017, the Premier Commercial Board invited selected industry experts, including Sandler O'Neill, to provide a current overview of the banking industry in general and the strategic alternatives available to Premier Commercial, including the potential sale of Premier Commercial. On August 17, 2017, Sandler O'Neill made a presentation to the Premier Commercial board of directors.   At that meeting, among other things, Sandler O'Neill discussed its extensive credentials advising banks on strategic transactions such as mergers and acquisitions.  Sandler O'Neill also reviewed the landscape of potential buyers and a range of potential values Premier Commercial might expect to receive in an acquisition as compared to Premier Commercial's current standalone value and a range of potential future values and net present values if Premier Commercial were to achieve Premier Commercial management's future forecast.  Following that meeting, the Premier Commercial board of directors decided to engage Sandler O'Neill to explore a potential sale of Premier Commercial.

On September 22, 2017, Sandler O'Neill held a kick-off meeting with Premier Commercial's management to confirm the goals and objectives of Premier Commercial and design a deal strategy and timeline that would best achieve the goals and objectives of Premier Commercial.

On October 2, 2017, Premier Commercial entered into an engagement letter with Sandler O'Neill for purposes of pursuing a sale of Premier Commercial.

During October 2017, Sandler O'Neill conducted due diligence on Premier Commercial and assisted Premier Commercial in preparing a package of introductory information to share with potential buyers.  In late October 2017, Sandler O'Neill confirmed with management of Premier Commercial that they were prepared to begin contacting potential buyers.  Based on the desire of the Premier Commercial board of directors to consummate a transaction that would maximize shareholder value with low execution risk, and hopefully with a party that would be a favorable cultural and strategic fit, the Premier Commercial board of directors decided that Sandler O'Neill would contact three parties anticipated to have the most interest and greatest capacity to consummate an acquisition of Premier Commercial, Heritage and two other parties ("Party A" and "Party B").

Beginning on October 30, 2017, Sandler O'Neill contacted Heritage, Party A and Party B and offered to share introductory information about Premier Commercial following entry into a confidentiality agreement.  Each of Heritage, Party A and Party B executed the confidentiality agreement with Premier Commercial and received the introductory information.

 

In mid-November 2017, Sandler O'Neill informed Heritage, Party A and Party B that the Premier Commercial board of directors would like to consider non-binding proposals at its next meeting on December 15, 2017.  In addition, Heritage, Party A and Party B were each invited to meet independently with Premier Commercial's management.  On November 20, 2017, management from Premier Commercial met in-person with management from Heritage to discuss initial due diligence questions and further explore a potential combination of Premier Commercial with Heritage.  In late November 2017, Party A informed Sandler O'Neill that, given Premier Commercial's relatively small size and its real estate lending orientation, Party A was not inclined to proceed with further due diligence.  On December 6, 2017, management from Premier Commercial, along with Sandler O'Neill, met in-person with management from Party B to discuss initial due diligence questions and further explore a potential combination of Premier Commercial with Party B.

On December 11, 2017, Heritage submitted a non-binding proposal regarding the acquisition of Premier Commercial by Heritage.  On December 13, 2017, Party B submitted a non-binding proposal regarding the acquisition of Premier Commercial by Party B.

On December 15, 2017, with representatives of Sandler O'Neill and Premier Commercial's legal counsel, Miller Nash Graham & Dunn, present, the Premier Commercial board of directors met and considered the non-binding proposals from each of Heritage and Party B.  The Heritage proposal outlined, among other things, consideration consisting of 100% stock and a fixed exchange ratio of 0.4299 of a Heritage common share for each Premier Commercial common share.  Based on Heritage's recent closing price of $31.20 per share, the Heritage proposal was valued at $13.41 per Premier Commercial common share or $78.5 million in the aggregate.  Heritage's proposal also included a 60 day exclusivity period. The Party B proposal provided, among other things, approximately 90% stock, 10% cash consideration valued at $13.16 per Premier Commercial common share or $77.0 million in the aggregate based on Party B's recent closing price.  Party B's proposal also included a period of exclusivity through March 31, 2018.  The Premier Commercial board of directors discussed the proposals, the financial performance and condition of Heritage and Party B, the strategic and cultural fit of Premier Commercial with each of Heritage and Party B and the execution risk of a merger with each of Heritage and Party B.  The Premier Commercial board of directors determined that the value of the proposals was inadequate and that the merger with Heritage represented an overall better strategic and cultural fit with lower execution risk.  The Premier Commercial board of directors instructed Sandler O'Neill to respond to Heritage with a counterproposal for a fixed exchange ratio of 0.4863 and the inclusion of a double trigger (decline in Heritage share price and decline in Heritage share price relative to a regional bank index) walk-away provision.  Based on Heritage's recent 10 day average share price, this exchange ratio would result in a value of $15.50 per Premier Commercial common share.

Following the meeting, Sandler O'Neill contacted Heritage's financial advisor and communicated the counterproposal.  Over the next several days, there was a series of negotiations involving representatives of Premier Commercial and Heritage and on December 21, 2017, Premier Commercial and Heritage entered into a non-binding letter of intent for a 100% stock deal with an exchange ratio of 0.4863 and a double trigger walk-away provision.  Also following the meeting, Sandler O'Neill contacted Party B and informed it that its proposal was inadequate and that Premier Commercial believed it would reach acceptable terms at a higher valuation and overall stronger cultural and strategic fit with another partner.  Party B elected not to enhance its proposal.

Heritage submitted to Premier Commercial a due diligence request list and beginning in late December 2017, Premier Commercial began populating an online data portal to facilitate Heritage's due diligence.

During January and February 2018, Heritage conducted a due diligence review of Premier Commercial including several management meetings and conference calls and an on-site review of Premier Commercial's loans.  In February 2018, Premier Commercial conducted due diligence of Heritage including information obtained from an online data portal and an on-site visit to review Heritage's books and records.

On February 1, 2018, Heritage circulated to Premier Commercial a draft of the merger agreement.  Negotiation of the merger agreement continued throughout February and early March 2018.

On February 1, 2018, Heritage Bank provided proposed transitional employment agreements to five executives of Premier Commercial or Premier Community Bank and employment agreements to two other employees of Premier Community  Bank.  Negotiation of these agreements continued through March 7, 2018.

On February 13, 2018, Heritage provided Premier Commercial with drafts of the ancillary documents to the merger agreement.  Negotiation of the ancillary documents continued through March 7, 2018.

 

On February 16, 2018,  Heritage and Premier Commercial entered into an agreement which extended the exclusivity period through March 9, 2018 to accommodate the completion of due diligence and final negotiations of the merger agreement.

On March 2, 2018, Premier Commercial provided its initial disclosure schedule to Heritage, which was updated in final form on March 8, 2018.

On March 5, 2018, Heritage provided its initial disclosure schedule to Premier Commercial, which was updated in final form on March 8, 2018.

On March 8, 2018, the Premier Commercial board of directors held a special meeting.  Representatives from Sandler O'Neill and Miller Nash Graham & Dunn participated in the meeting.  At the meeting, the Premier Commercial board of directors reviewed the final merger agreement, ancillary agreements and related summaries and supplemental materials in detail.  Sandler O'Neill presented its fairness opinion to the Premier Commercial board of directors as to the fairness, from a financial point of view, of the exchange ratio to the common shareholders of Premier Commercial.  At the conclusion of the meeting, the Premier Commercial board of directors unanimously approved the merger agreement and ancillary agreements.

On March 8, 2018, the Heritage board of directors held a special meeting at which its members unanimously approved the merger agreement and ancillary agreements.

On March 8, 2018, Premier Commercial and Heritage executed the merger agreement, the ancillary agreements were entered into, and the transitional employment agreements and other employment agreements were executed.

Recommendation of the Premier Commercial Board of Directors and Reasons of Premier Commercial for the Merger

At the special meeting held on March 8, 2018, the Premier Commercial board of directors determined that the terms of the merger agreement were in the best interests of Premier Commercial and its shareholders. In the course of reaching this determination and related decision to approve the merger agreement, the Premier Commercial board of directors evaluated the merger and the merger agreement in consultation with the management of Premier Commercial and its financial advisor and legal counsel. In reaching its determination, the Premier Commercial board of directors considered a number of factors. Such factors also constituted the reasons that the Premier Commercial board of directors unanimously determined to approve the merger agreement and to recommend that Premier Commercial's shareholders vote in favor of the merger agreement. Such reasons included the following:

•	the terms of the merger agreement along with the value and form of consideration to be received by Premier Commercial shareholders in the merger;

•	the historical trading ranges for Heritage common shares;

•	the historic and prospective business of Premier Commercial;

•	the opportunistic impact of the merger for employees and customers of Premier Commercial;

•	the future employment opportunities for existing employees of Premier Commercial;

•

information concerning Heritage's financial condition and results of operations as well as the likelihood that Heritage would be able to fully execute the transaction, including obtaining all requisite regulatory approvals for the merger and bank merger without unduly burdensome conditions or delay;

•

the opinion, dated March 8, 2018, of Sandler O'Neill to the Premier Commercial board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Premier Commercial common stock of the exchange ratio, as more fully described below under "Opinion of Premier Commercial's Financial Advisor";

 

 

•	the provisions in the merger agreement that provide for the ability of the  Board to respond to a subsequent unsolicited acquisition proposal that the Premier Commercial board of directors determines in good faith is a superior proposal as defined in the merger agreement; and

•

the provisions of the merger agreement that provide for the ability of the Premier Commercial board of directors to terminate the merger agreement, subject to certain conditions including the payment of a termination  fee, if Premier Commercial has entered into a definitive agreement with respect to a superior proposal.

The Board also considered a number of uncertainties and risks in its deliberations concerning the transactions contemplated by the merger agreement, including the following:

•

the merger consideration will be paid through the issuance of a fixed number of Heritage common shares, and any decrease in the market price of Heritage common shares after the date of the merger agreement will result in a reduction of the aggregate merger consideration to be received by Premier Commercial shareholders at the time of completion of the merger;

•	at the time of voting their shares, Premier Commercial shareholders will not necessarily know or be able to calculate the actual value of the merger consideration which they will receive upon completion of the merger;

•	the possible disruption to Premier Commercial's business that may result from the announcement of the merger and the resulting distraction of management's attention from the day-to-day operations of Premier Commercial's business; and

•	the restrictions contained in the merger agreement on the operation of Premier Commercial's business during the period between signing of the merger agreement and completion of the merger, as well as the other covenants and agreements of Premier Commercial contained in the merger agreement.

The foregoing discussion of the reasons that led the Premier Commercial board of directors to approve the merger agreement and recommend that Premier Commercial's shareholders vote in favor of the merger agreement is not intended to be exhaustive but is believed to include all of the material reasons for its decision. In reaching its determination to approve the merger agreement and recommend shareholder approval of the merger agreement, the Premier Commercial board of directors based its recommendation on the totality of the information presented to it and did not assign any relative or specific weights to the reasons or factors considered in reaching that determination. Individual directors may have given differing weights to different reasons and factors. After deliberating with respect to the merger with Heritage, considering, among other things, the matters discussed above, the Premier Commercial board of directors unanimously approved the merger agreement and the merger with Heritage as being in the best interests of Premier Commercial and its shareholders.

This summary of the reasoning of Premier Commercial's board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section entitled "Cautionary Statement Regarding Forward-Looking Statements."

Premier Commercial retained Sandler O'Neill to act as an independent financial advisor to Premier Commercial's board of directors in connection with Premier Commercial's consideration of a possible business combination.  Sandler O'Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions.  In the ordinary course of its investment banking business, Sandler O'Neill is regularly

 

engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O'Neill acted as an independent financial advisor in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the merger agreement.  At the March 8, 2018 meeting at which Premier Commercial's board of directors considered and discussed the terms of the merger agreement and the merger, Sandler O'Neill delivered to Premier Commercial's board of directors its oral opinion, which was subsequently confirmed in writing, to the effect that, as of March 8, 2018, the exchange ratio provided for in the merger agreement was fair to the holders of Premier Commercial common stock from a financial point of view.  The full text of Sandler O'Neill's opinion is attached as Appendix B to this proxy statement/prospectus.  The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O'Neill in rendering its opinion.  The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion.  Holders of Premier Commercial common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O'Neill's opinion speaks only as of the date of the opinion. The opinion was directed to Premier Commercial's board of directors in connection with its consideration of the merger agreement and the merger and does not constitute a recommendation to any shareholder of Premier Commercial as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger agreement and the merger.  Sandler O'Neill's opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of Premier Commercial common shares and does not address the underlying business decision of Premier Commercial to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Premier Commercial or the effect of any other transaction in which Premier Commercial might engage.  Sandler O'Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of Premier Commercial or Heritage, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder, including the exchange ratio to be received by the holders of Premier Commercial common stock. Sandler O'Neill's opinion was approved by Sandler O'Neill's fairness opinion committee.

In connection with its opinion, Sandler O'Neill reviewed and considered, among other things:

·	a draft of the merger agreement, dated March 8, 2018;

·	certain publicly available financial statements and other historical financial information of Premier Commercial that Sandler O'Neill deemed relevant;

·	certain publicly available financial statements and other historical financial information of Heritage that Sandler O'Neill deemed relevant;

·

certain internal financial projections for Premier Commercial for the years ending December 31, 2018 through December 31, 2020, as provided by the management of Premier Commercial, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the senior management of Premier Commercial;

·

publicly available consensus mean analyst earnings per share estimates for Heritage for the years ending December 31, 2018 and December 31, 2019, as well as a long-term earnings per share growth rate for the years thereafter and dividend payout ratio for the years ending December 31, 2018 through December 31, 2022,  as discussed with the senior management of  Heritage;

·

the pro forma financial impact of the merger on Heritage based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as well as the redemption of Premier Commercial's outstanding trust preferred and other borrowings at closing of the Merger, as provided by the management of Heritage and its representatives;

·	the publicly reported historical price and trading activity for Premier Commercial and Heritage

 

common stocks, including a comparison of certain stock market information for Premier Commercial and Heritage common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

·	a comparison of certain financial information for Premier Commercial and  Heritage with similar financial institutions for which information is publicly available;

·	the financial terms of certain recent business combinations in the banking industry (on a nationwide basis), to the extent publicly available;

·	the current market environment generally and the banking environment in particular; and

·	such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O'Neill considered relevant.

Sandler O'Neill also discussed with certain members of the management of Premier Commercial the business, financial condition, results of operations and prospects of Premier Commercial and held similar discussions with certain members of the senior management of Heritage regarding the business, financial condition, results of operations and prospects of Heritage.

In performing its review, Sandler O'Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Sandler O'Neill from public sources, that was provided to Sandler O'Neill by Premier Commercial or Heritage or their respective representatives or that was otherwise reviewed by Sandler O'Neill, and Sandler O'Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation.  Sandler O'Neill relied on the assurances of the respective managements of Premier Commercial and Heritage that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading.  Sandler O'Neill was not asked to and did not undertake an independent verification of any of such information and Sandler O'Neill did not assume any responsibility or liability for the accuracy or completeness thereof.  Sandler O'Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Premier Commercial or Heritage, or any of their respective subsidiaries, nor was Sandler O'Neill furnished with any such evaluations or appraisals.  Sandler O'Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Premier Commercial or Heritage.  Sandler O'Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Premier Commercial or Heritage or the combined entity after the merger and Sandler O'Neill did not review any individual credit files relating to Premier Commercial or Heritage.  Sandler O'Neill assumed, with Premier Commercial's consent, that the respective allowances for loan losses for both Premier Commercial and Heritage were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O'Neill used certain internal financial projections for Premier Commercial for the years ending December 31, 2018 through December 31, 2020, as provided by the senior management of Premier Commercial, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the senior management of Premier Commercial. In addition, Sandler O'Neill used publicly available consensus mean analyst earnings per share estimates for Heritage for the years ending December 31, 2018 and December 31, 2019, as well as a long-term earnings per share growth rate for the years thereafter and dividend payout ratio for the years ending December 31, 2018 through December 31, 2022, as discussed with the senior management of Heritage.  Sandler O'Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as well as the redemption of Premier Commercial's outstanding trust preferred securities and other borrowings at closing of the merger, as provided by the management of Heritage and its representatives. With respect to the foregoing information, the respective managements of Premier Commercial and Heritage confirmed to Sandler O'Neill that such information reflected (or, in the case of the publicly available consensus mean analyst earnings per share estimates referred to above, were consistent with) the best currently available projections, estimates and judgments of those respective managements as to the future financial performance of Premier Commercial and Heritage, respectively, and the other matters covered thereby, and Sandler O'Neill assumed that the future financial performance reflected in such information would be achieved. Sandler O'Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O'Neill also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of Premier Commercial or Heritage

 

since the date of the most recent financial statements made available to Sandler O'Neill. Sandler O'Neill assumed in all respects material to its analysis that Premier Commercial and Heritage would remain as going concerns for all periods relevant to Sandler O'Neill's analysis.

Sandler O'Neill also assumed, with Premier Commercial's consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Premier Commercial, Heritage or the merger or any related transaction, (iii) the merger and any related transaction would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, and (iv) the merger would qualify as a tax-free reorganization for federal income tax purposes.  Finally, with Premier Commercial's consent, Sandler O'Neill relied upon the advice that Premier Commercial received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Sandler O'Neill expressed no opinion as to any such matters.

Sandler O'Neill's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O'Neill as of, the date thereof.  Events occurring after the date thereof could materially affect Sandler O'Neill's opinion.  Sandler O'Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof.  Sandler O'Neill expressed no opinion as to the trading values of Premier Commercial common stock or Heritage common stock at any time or what the value of Heritage common stock would be once it is actually received by the holders of Premier Commercial common stock.

In rendering its opinion, Sandler O'Neill performed a variety of financial analyses.  The summary below is not a complete description of the analyses underlying Sandler O'Neill's opinion or the presentation made by Sandler O'Neill to Premier Commercial's board of directors, but is a summary of all material analyses performed and presented by Sandler O'Neill.  The summary includes information presented in tabular format.  In order to fully understand the financial analyses, these tables must be read together with the accompanying text.  The tables alone do not constitute a complete description of the financial analyses.  The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances.  The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O'Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion.  Also, no company included in Sandler O'Neill's comparative analyses described below is identical to Premier Commercial or Heritage and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Premier Commercial and Heritage and the companies to which they are being compared.  In arriving at its opinion, Sandler O'Neill did not attribute any particular weight to any analysis or factor that it considered.  Rather, Sandler O'Neill made qualitative judgments as to the significance and relevance of each analysis and factor.  Sandler O'Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O'Neill made its determination as to the fairness of the exchange ratio on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Sandler O'Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which are beyond the control of Premier Commercial, Heritage and Sandler O'Neill.  The analyses performed by Sandler O'Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses.  Sandler O'Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to Premier Commercial's board of directors at its March 8, 2018 meeting.  Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their

 

securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different.  Accordingly, Sandler O'Neill's analyses do not necessarily reflect the value of Premier Commercial common stock or the prices at which Premier Commercial common stock or Heritage common stock may be sold at any time.  The analyses of Sandler O'Neill and its opinion were among a number of factors taken into consideration by Premier Commercial's board of directors in making its determination to approve the merger agreement and should not be viewed as determinative of the exchange ratio or the decision of Premier Commercial's board of directors or management with respect to the fairness of the merger. The type and amount of consideration payable in the merger were determined through negotiation between Premier Commercial and Heritage.

    Summary of Exchange Ratio and Implied Transaction Metrics.  Sandler O'Neill reviewed the financial terms of the proposed merger.  Subject to a possible price adjustment pursuant to a termination provision of the merger agreement, as more fully described in the merger agreement, at the effective time, each share of Premier Commercial common stock issued an outstanding prior to the effective time, except for certain shares of Premier Commercial common stock as specified in the merger agreement, will be converted into the right to receive a number of shares of the Common stock of Heritage equal to the exchange ratio.  Based on the closing price of Heritage common stock on March 7, 2018 of $31.35 and a per share exchange ratio of 0.4863, Sandler O'Neill calculated an implied transaction price per share of Premier Commercial common stock of $15.25 and an aggregate implied transaction value of approximately $89.3 million in exchange for all shares of Premier Commercial common stock and restricted stock issued and outstanding as of March 7, 2018.  Based upon historical financial information for Premier Commercial as of or for the last twelve months ("LTM") ended December 31, 2017, Sandler O'Neill calculated the following implied transaction metrics.

Note:

1: Core deposits calculated as total deposits less CDs greater than $100,000.

Premier Commercial Comparable Company Analyses.  Sandler O'Neill used publicly available information to compare selected financial information for Premier Commercial with a group of commercial banks selected by Sandler O'Neill (the "Premier Commercial Peer Group").  The Premier Commercial Peer Group consisted of publicly traded banks headquartered in the Western Region with total assets between $300 million and $600 million, nonperforming assets/assets less than 2% and tangible common equity/tangible assets between 8% and 12%, excluding announced merger targets. The Premier Commercial Peer Group consisted of the following companies:

Note:

1: Bank-level regulatory data used where consolidated is unavailable

The analysis compared publicly available financial information as of December 31, 2017 for Premier Commercial, with the corresponding publicly available data for the Premier Commercial Peer Group, with pricing data as of March 7, 2018. The table below sets forth the data for Premier Commercial and the high, low, median and mean data for the Premier Commercial Peer Group.

Premier Commercial Stock Trading History.  Sandler O'Neill reviewed the historical stock price performance of Premier Commercial common shares for the one-year and three-year periods ended March 7, 2018. Sandler O'Neill then compared the relationship between the stock price performance of Premier Commercial's common shares to movements in the Premier Commercial Peer Group as well as certain stock indices.

Note:

1: Pacific Enterprise Bancorp excluded from one and three year groups due to lack of trading history; Commencement Bank excluded from three year group due to lack of trading history

Premier Commercial Net Present Value Analyses.  Sandler O'Neill performed an analysis that estimated the net present value per share of Premier Commercial common stock assuming Premier Commercial performed in accordance with internal financial projections for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the management of Premier Commercial. To approximate the terminal value of a share of Premier Commercial common stock at December 31, 2022, Sandler O'Neill applied price to 2022 earnings per share multiples ranging from 13.0x to 23.0x and price to December 31, 2022 tangible book value per share multiples ranging from 115% to 190%.  The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 16.0% which

were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Premier Commercial common stock.  As illustrated in the following tables, the analysis indicated an imputed range of values per share of Premier Commercial common stock of $8.34 to $18.38 when applying multiples of earnings per share and $6.75 to $13.90 when applying multiples of tangible book value per share.

Sandler O'Neill also considered and discussed with the Premier Commercial board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income.  To illustrate this impact, Sandler O'Neill performed a similar analysis assuming Premier Commercial's earnings per share varied from 15% above projections to 15% below projections.  This analysis resulted in the following range of per share values for each Premier Commercial common share, applying the price to 2022 earnings per share multiples range of 13.0x to 23.0x referred to above and a discount rate of 13.51%.