<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 000-29480
A. Full title of the plan and address, if different from that of the issuer
named below:
HERITAGE FINANCIAL CORPORATION
401(k) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
HERITAGE FINANCIAL CORPORATION
201 5TH AVENUE S.W.
OLYMPIA, WASHINGTON 98501-1114
REQUIRED INFORMATION
The Heritage Financial Corporation 401(k) Employee Stock Ownership Plan and
Trust is subject to ERISA and elects to file Plan Financial Statements and
Schedules prepared in accordance with the Financial Reporting Statements of
ERISA.
The Heritage Financial Corporation 401(k) Employee Stock Ownership Plan and
Trust Financial Statements and Additional Information as of December 31, 1999
annexed as Exhibit A hereto are hereby incorporated by reference herein, and are
included as a part of this Annual Report.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- -------------------------------------------------------
23 Consent of Dodd Wing & Co., P.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Heritage
Financial Corporation as the named Administrator under the Heritage Financial
Corporation 401(k) Employee Stock Ownership Plan and Trust, has duly caused the
annual report to be signed by the undersigned thereunto duly authorized.
Dated: June 28, 2000 HERITAGE FINANCIAL CORPORATION 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
BY: HERITAGE BANK
Administrator
BY: /s/ Donald V. Rhodes
-----------------------------------
PRINTED NAME: Donald V. Rhodes
-------------------------
TITLE: Chairman, President and CEO
--------------------------------
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
FINANCIAL STATEMENTS
December 31, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits 4-6
Statement of Changes in Net Assets Available for Benefits 7-8
Notes to Financial Statements 9-14
SUPPLEMENTAL INFORMATION
Schedule of Assets Held for Investment Purposes 16
<PAGE>
Independent Auditor's Report
To the Board of Trustees
Heritage Financial Corporation 401(k)
Employee Stock Ownership Plan
Olympia, Washington
We have audited the accompanying statement of net assets available for
benefits of Heritage Financial Corporation 401(k) Employee Stock Ownership
Plan (the Plan) as of December 31, 1999, and the related statement of changes
in net assets available for benefits for the year then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of the Plan as of December 31, 1998 were
audited by other auditors whose report dated June 8, 1999 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Heritage
Financial Corporation 401(k) Employee Stock Ownership Plan as of December 31,
1999, and the related changes in net assets available for benefits for the
year then ended, in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets
held for investment purposes at year end referred to as "supplemental
information," is presented for the purpose of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental information is the responsibility of the Plan's
management. The supplemental information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Dodd Wing & Co., P.C.
Kirkland, Washington
May 31, 2000
Page 3
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1999
----------------------------------------------------------------------------------------------------
HFWA Stock Balanced Money Market
Fund Fund Fund Fund
-------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments at fair value:
Shares of registered
investment companies $ - $2,110,099 $2,878,836 $ -
HFWA common stock 132,273 - - -
Cash and money funds 137 54,137 68,503 1,623,996
Participant loans - - - -
-------- ---------- ---------- ----------
Total investments 132,410 2,164,236 2,947,339 1,623,996
-------- ---------- ---------- ----------
Receivables:
Employer contributions 10,711 108,305 60,411 17,652
Accrued interest - 185 313 7,846
-------- ---------- ---------- ----------
Total receivables 10,711 108,490 60,724 25,498
-------- ---------- ---------- ----------
Total assets 143,121 2,272,726 3,008,063 1,649,494
-------- ---------- ---------- ----------
LIABILITIES
Loan payable - - - -
Accounts payable - - - -
-------- ---------- ---------- ----------
Total liabilities - - - -
-------- ---------- ---------- ----------
Due (to) from other funds 59,033 484,367 76,247 (619,647)
-------- ---------- ---------- ----------
Net assets (deficit) available for benefits $202,154 $2,757,093 $3,084,310 $1,029,847
======== ========== ========== ==========
</TABLE>
See notes to financial statements.
Page 4
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1999
--------------------------------------------------------------------------------------------------
Loan
Fund Allocated Unallocated Total
------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Investments at fair value:
Shares of registered
investment companies $ - $ - $ - $4,988,935
HFWA common stock - 1,172,319 994,911 2,299,503
Cash and money funds - 17,534 - 1,764,307
Participant loans 4,735 - - 4,735
------- ---------- ---------- ----------
Total investments 4,735 1,189,853 994,911 9,057,480
------- ---------- ---------- ----------
Receivables:
Employer contributions - - 54,215 251,294
Accrued interest - - - 8,344
------- ---------- ---------- ----------
Total receivables - - 54,215 259,638
------- ---------- ---------- ----------
Total assets 4,735 1,189,853 1,049,126 9,317,118
------- ---------- ---------- ----------
LIABILITIES
Loan payable - - 1,231,537 1,231,537
Accounts payable - 13,088 - 13,088
------- ---------- ---------- ----------
Total liabilities - 13,088 1,231,537 1,244,625
------- ---------- ---------- ----------
Due (to) from other funds - - - -
------- ---------- ---------- ----------
Net assets (deficit) available for benefits $4,735 $1,176,765 $ (182,411) $8,072,493
======= ========== ========== ==========
</TABLE>
See notes to financial statements.
Page 5
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1998
--------------------------------------------------------------------------------------
Allocated Unallocated Total
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Investments at fair value:
Shares of HFWA common stock $1,295,912 $1,210,648 $2,506,560
Cash and money funds 10,873 - 10,873
---------- ---------- ----------
Total investments 1,306,785 1,210,648 2,517,433
Other receivables 94 - 94
---------- ---------- ----------
Total assets 1,306,879 1,210,648 2,517,527
---------- ---------- ----------
LIABILITIES
Loan payable - 1,280,835 1,280,835
---------- ---------- ----------
Net assets (deficit) available for benefits $1,306,879 $ (70,187) $1,236,692
========== ========== ==========
</TABLE>
See notes to financial statements.
Page 6
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1999
-------------------------------------------------------------------------------------------------
HFWA Stock Balanced Money Market
Fund Fund Fund Fund
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Net appreciation (depreciation) in fair value $ 7,298 $ 312,575 $ 229,665 $ -
Interest and dividends 2,509 10,138 53,825 16,775
Participant contributions 7,095 58,833 43,650 8,408
Employer contributions 47,582 110,659 78,067 17,639
Rollover contributions - 591 1,181 591
ESOP loan payments - - - -
Allocation of 8,817 shares of
common stock, at fair value - - - -
Transfers:
From North Pacific ESOP 5,097 332,410 320,955 104,745
From 401(k) Profit Sharing Plan 114,151 1,851,533 669,165 920,676
From Money Purchase Pension - 2,511 2,090,299 -
Between Funds 18,422 171,822 (231,374) 41,130
-------- ---------- ---------- ----------
Total additions 202,154 2,851,072 3,255,433 1,109,964
-------- ---------- ---------- ----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants - 91,729 166,696 78,998
Purchases of 3,957 shares
of common stock, at fair value - - - -
Allocation of 8,817 shares
of common stock, at fair value - - - -
Loan payments - (895) (706) -
Administrative expense - 3,145 5,133 1,119
Interest expense - - - -
-------- ---------- ---------- ----------
Total deductions - 93,979 171,123 80,117
-------- ---------- ---------- ----------
Net increase (decrease) 202,154 2,757,093 3,084,310 1,029,847
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year - - - -
-------- ---------- ---------- ----------
End of year $202,154 $2,757,093 $3,084,310 $1,029,847
======== ========== ========== ==========
</TABLE>
See notes to financial statements.
Page 7
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1999
-----------------------------------------------------------------------------------------------
Loan
Fund Allocated Unallocated Total
------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Net appreciation (depreciation) in fair value $ - $ (102,834) $(139,690) $ 307,014
Interest and dividends 357 21,134 17,813 122,551
Participant contributions - - - 117,986
Employer contributions - 15,175 54,215 323,337
Rollover contributions - - - 2,363
ESOP loan payments - - 138,465 138,465
Allocation of 8,817 shares of
common stock, at fair value - 76,047 - 76,047
Transfers:
From North Pacific Bank ESOP 4,082 - - 767,289
From 401(k) Profit Sharing Plan 1,951 - - 3,557,476
From Money Purchase Pension - - - 2,092,810
Between Funds - - - -
------ ---------- --------- ----------
Total additions 6,390 9,522 70,803 7,505,338
------ ---------- --------- ----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 54 106,313 - 443,790
Purchases of 3,957 shares
of common stock, at fair value - 33,323 - 33,323
Allocation of 8,817 shares
of common stock, at fair value - - 76,047 76,047
Loan payments 1,601 - - -
Administrative expense - - - 9,397
Interest expense - - 106,980 106,980
------ ---------- --------- ----------
Total deductions 1,655 139,636 183,027 669,537
------ ---------- --------- ----------
Net increase (decrease) 4,735 (130,114) (112,224) 6,835,801
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year - 1,306,879 (70,187) 1,236,692
------ ---------- --------- ----------
End of year $4,735 $1,176,765 $(182,411) $8,072,493
====== ========== ========= ==========
</TABLE>
See notes to financial statements.
Page 8
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN AND BASIS OF PRESENTATION
The following description of Heritage Financial Corporation (the Company)
401(k) Employee Stock Ownership Plan (KSOP) provides only general
information. Participants should refer to the KSOP Plan agreement for a
more complete description of the Plan's provision.
Effective October 1, 1999, the Company amended the Heritage Bank Employee
Stock Ownership Plan and Trust to be restated as the Heritage Financial
Corporation 401(k) Employee Stock Ownership Plan (KSOP). As of October 1,
1999, all of the plan assets of the Heritage Bank Money Purchase Pension
Plan, the Heritage Bank 401(k) Profit Sharing Plan and the North Pacific
Bank Employee Stock Ownership Plan were merged into the restated KSOP.
The Company established the KSOP effective as of July 1, 1993. The KSOP
operates as a leveraged employee stock ownership plan (ESOP), designed to
comply with Section 4975(e)(7) and the regulations thereunder of the
Internal Revenue Code, as amended (the Code), and subject to the applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended (ERISA).
The KSOP purchased shares of the Company's common stock using the proceeds
of a borrowing from the Company and holds the stock in a Trust established
under the KSOP. The borrowing is to be repaid over a period of 15 years by
fully deductible Company contributions to the trust fund. As the plan makes
each payment of principal, an appropriate percentage of stock is allocated
to eligible employees' accounts in accordance with applicable regulations
under the Code.
The borrowing is collateralized by the unallocated shares of stock. The
lender has no rights against shares once they are allocated under the ESOP.
Accordingly, the financial statements of the KSOP for the twelve month
period ending December 31, 1999, present separately the assets and
liabilities and changes therein pertaining to:
(a) Accounts of employees comprising allocated stock (Allocated), and
(b) Shares of stock not yet allocated to employee accounts
(Unallocated).
Employees of the Company are generally eligible to participate in the Plan
after one year of service, providing they worked at least 1,000 hours
during the Plan year and have reached the age of twenty-one.
Contributions
Participants may elect to contribute up to the lesser of 10% of their total
compensation or $10,000, or a maximum amount that will not cause the KSOP
to violate the provisions of the Internal Revenue Code.
The Company contributes an amount equal to 50% of the participant's
contribution up to 6% of the participant's compensation. The Company also
makes contributions of 2% of the participant's eligible compensation. The
Company may elect to make discretionary contributions beyond the required
2% contribution. Participants who do not have at least 1,000 hours of
service during the Plan year, or are not employed on the last working day
of a Plan year, are generally not eligible for an allocation of Company
contributions for that year.
Page 9
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN AND BASIS OF PRESENTATION (Continued)
Participant Accounts
Each participant's account is credited with the participant's contribution
and allocations of the Company's contributions and plan earnings.
Allocations are based on participant earnings or account balances as
defined. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's account.
In relation to the ESOP portion of the Plan, each participant is entitled
to exercise voting rights attributable to the shares allocated to his or
her account and is notified by the Trustee prior to the time that such
rights are to be exercised.
Vesting
Vesting in the Company's contributions plus earnings thereon is based on
years of continuous service. A participant is 100% vested after seven years
of credited service or upon death, disability or retirement. The vesting
schedule applicable to the prior plans merged into the KSOP will continue
to apply to existing accounts and on an ongoing basis to accounts after
October 1, 1999. However, no credit for service prior to July 1, 1993 will
be given for any such account.
Investment Options
The Plan's assets are maintained in funds and company common stock with US
Bank. Upon enrollment in the Plan, a participant may direct his or her
employee contributions in 1% increments among any of the four investment
options.
Heritage Financial Corporation of Washington Common Stock
The common shares of the Heritage Financial Corporation are traded on
the NASDAQ National Market System.
Stock Fund
Funds are invested in shares of a registered investment company that
invests in common stocks.
Balanced Fund
Funds are invested in shares of a registered investment company that
invests in a mix of stock and fixed income funds.
Money Market Fund
Funds are invested in shares of a registered investment company that
invests in money market instruments.
Participants can make changes to their deferral amounts and investment
options for new deferrals and may reallocate their entire Plan balance at
the beginning of each quarter.
Page 10
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN AND BASIS OF PRESENTATION (Concluded)
Payment of Benefits
No distributions from the KSOP will be made until a participant retires,
dies (in which case, payment shall be made to his or her beneficiary or, if
none, to his or her legal representatives), becomes disabled or otherwise
terminates employment with the Bank and its participating subsidiary.
Distributions are made in cash or, if a participant elects, in the form of
Heritage Financial Corporation common shares plus cash for any fractional
share.
Forfeitures
At December 31, 1999, forfeited nonvested accounts totaled $4,416. These
accounts were used to reduce employer contributions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
changes therein, and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The KSOP's investments are stated at fair value. Shares of registered
investment companies and the common shares of the Heritage Financial
Corporation are valued at quoted market prices, which represent the net
asset value of shares held by the Plan on December 31, 1999. Fair value of
the Company common stock is determined by the closing price of stock on the
NASDAQ National Market System.
Dividend income is accrued on the ex-dividend date.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Realized gains and losses
from security transactions are reported on the specific identification
method.
Payment of Benefits
Benefits are recorded when paid. At December 31, 1999, assets allocated to
withdrawing participants totaled $119,863.
Page 11
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
3. PLAN TERMINATION
The Company reserves the right to terminate the KSOP at any time, subject
to Plan provisions. Upon termination of the KSOP, the interest of each
participant in the trust fund will be distributed to the participant or his
or her beneficiary at the time prescribed by the KSOP terms and the Code.
Upon termination of the KSOP, the Trustee will direct the Plan
Administrator to pay all liabilities and expenses of the trust fund and to
sell shares of financed stock held in the loan suspense account to the
extent it determines such sale to be necessary in order to repay the loan.
4. TAX STATUS
The Plan obtained its latest determination letter on June 28, 1996, in
which, the Internal Revenue Service stated that the plan, as then designed,
was in compliance with the applicable requirements of the Internal Revenue
Code. The KSOP was amended effective October 1, 1999 to merge the Money
Purchase Pension Plan and the 401(k) Profit Sharing Plan and Trust into the
restated Employee Stock Ownership Plan which was amended to the Heritage
Financial Corporation 401(k) Employee Stock Ownership Plan. The
determination letter for the latest amendment is in the process of being
filed. The Plan administrator and the Plan's counsel believe that the Plan
is currently designed and being operated in compliance with the applicable
requirements of the Code. Therefore, they believe the KSOP was qualified
and the related trust was tax exempt as of December 31, 1999.
5. ADMINISTRATION OF PLAN ASSETS
The KSOP's assets, which consist of shares of Heritage Financial
Corporation common stock and Frank Russell mutual funds, are held by the
Trustee of the Plan in safekeeping in an account with US Bank. The
Company's contributions are held and managed by the Trustee, which invests
cash received, interest and dividend income, and makes distributions to
participants. The Trustee also administers the payment of interest and
principal on the loan, which is reimbursed to the Trustee through
contributions determined by the Company.
Certain administrative functions are performed by officers or employees of
the Company. No officer, employee, or Trustee receives compensation from
the KSOP.
The Company has retained the services of a third-party administrator to
perform certain other administrative functions. Administrative expenses
paid to the third-party administrator and investment fees are paid by the
KSOP or the Company.
Page 12
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
6. LOAN PAYABLE
In January 1998, the KSOP borrowed $1,323,000 from the Company to purchase
additional shares of the Company's common stock. The loan matures January
2013 and will be repaid primarily from the Company's contributions.
Interest is stated at a rate of 8.5% per annum. Principal payments for the
five years ended December 31, 2004 and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 53,656
2001 58,399
2002 63,561
2003 69,179
2004 75,293
Thereafter 911,449
----------
Total $1,231,537
==========
</TABLE>
7. EMPLOYER CONTRIBUTIONS
Money Purchase Pension Plan and the 401(k) employer contributions to the
Plan will be invested primarily in common shares of Company stock. In
relation to the ESOP version of the KSOP, the Company is obligated to make
contributions in cash to the KSOP which, when aggregated with the KSOP's
dividends and interest earnings, equal the amount necessary to enable the
Plan to make its regularly scheduled payments of principal and interest due
on its term indebtedness to the Company.
8. RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements at December 31, 1999 to Schedule H of Form 5500:
Net assets available for benefits
per the financial statements $8,072,493
Amounts allocated to withdrawing participants (119,863)
----------
Net assets available for benefits
per Schedule H to the Form 5500 $7,952,630
==========
Page 13
<PAGE>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
9. RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
(Concluded)
The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 1999 to Schedule H of
Form 5500:
Benefits paid to participants per
the financial statements $443,790
Add: amounts allocated to withdrawing
participants at December 31, 1999 119,863
--------
Benefits paid to participants per
Schedule H of Form 5500 $563,653
========
Page 14
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
HERITAGE FINANCIAL CORPORATION
401(K) EMPLOYEE STOCK OWNERSHIP PLAN
EIN 91-1618099, Plan 003
Schedule of Assets Held for Investment Purposes
December 31, 1999
----------------------------------------------------------------------------------------------
(a), (b) (c) (d) (e)
Description of Investment including
maturity date, rate of interest, Current
Identity of Issue collateral, par or maturity value Cost Value
----------------------------- ------------------------------------ ----------- -----------
<S> <C> <C> <C>
Cash Cash $ 4,569 $ 4,569
U.S. Bank First American Prime Obligation 1,759,738 1,759,738
Heritage Financial
Corporation of Washington Common Stock 1,752,554 2,299,503
Frank Russell Fixed
Income I Fund, Class I Registered Investment Company Shares 744,197 712,031
Frank Russell Fixed
Income III Fund, Class I Registered Investment Company Shares 452,826 427,277
Frank Russell Equity I
Fund, Class I Registered Investment Company Shares 810,808 980,224
Frank Russell Equity II
Fund, Class I Registered Investment Company Shares 424,785 513,441
Frank Russell International
Fund, Class I Registered Investment Company Shares 785,141 995,046
Frank Russell Emerging
Markets Fund, Class S Registered Investment Company Shares 198,877 239,523
Frank Russell Real Estate
Securities Fund, Class S Registered Investment Company Shares 157,976 147,642
Frank Russell Equity Q
Fund, Class I Registered Investment Company Shares 808,737 973,751
Participant loans Interest range 8-10% 4,735 4,735
---------- ----------
$7,904,943 $9,057,480
========== ==========
</TABLE>
Page 16
