Second Quarter 2026 Highlights
- Net income was $17.5 million, or $0.42 per diluted share, compared to $18.9 million, or $0.48 per diluted share, for the first quarter of 2026.
- Adjusted diluted earnings per share (1) was $0.57, compared to $0.59 in the first quarter of 2026.
- Net interest margin increased to 3.99%, an increase of 3 basis points from 3.96% for the first quarter of 2026.
- Cost of interest bearing deposits decreased to 1.67%, from 1.71% for the first quarter of 2026.
- Declared a regular cash dividend of $0.25 per share on July 22, 2026, an increase of 4.2% from the $0.24 regular cash dividend per share declared in the second quarter of 2026.
OLYMPIA, Wash., July 23, 2026 /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company," "we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $17.5 million for the second quarter of 2026, compared to $18.9 million for the first quarter of 2026 and $12.2 million for the second quarter of 2025. Diluted earnings per share was $0.42 for the second quarter of 2026, compared to $0.48 for the first quarter of 2026 and $0.36 for the second quarter of 2025. Adjusted diluted earnings per share(1) was $0.57 for the second quarter of 2026, compared to $0.59 for the first quarter of 2026 and $0.53 for the second quarter of 2025.
This is the first full quarter of financial results subsequent to the acquisition of Olympic Bancorp, Inc. (the "Merger") which closed on January 31, 2026. The Company recognized merger-related expenses of $7.5 million in the second quarter of 2026, compared to $5.2 million in the first quarter of 2026. After the systems conversion in the third quarter 2026, the Company will recognize additional cost savings.
Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We are pleased with the continued improvement in our net interest margin and our strong credit quality metrics. Although loan growth was muted by higher prepayments in the second quarter, we saw strong loan origination and continue to maintain a solid loan pipeline. As our fixed rate loans reprice to higher yields, we expect that our net interest margin will continue to improve. The increase in net interest margin, as well as the expected cost savings from the acquisition, provides optimism for enhanced future earnings."
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the
comparable GAAP financial measure.
Financial Highlights
The following table provides financial highlights as of the dates and for the periods indicated:
---
As of or for the Quarter Ended
June 30, March 31, June 30,
2026 2026 2025
(Dollars in thousands, except per share
amounts)
Net income $17,546 $18,947 $12,215
Diluted earnings per share 0.42 0.48 0.36
Adjusted diluted earnings per share(1) 0.57 0.59 0.53
Return on average assets(2) 0.83 % 0.97 % 0.70 %
Adjusted return on average assets(1)(2) 1.12 % 1.18 % 1.03 %
Return on average common equity(2) 6.33 7.32 5.57
Return on average tangible common equity(1)(2) 10.17 11.14 7.85
Adjusted return on average tangible common equity(1)(2) 13.29 13.36 11.59
Net interest margin(2) 3.99 3.96 3.51
Cost of total deposits(2) 1.21 1.25 1.40
Efficiency ratio 76.5 72.6 72.7
Adjusted efficiency ratio(1) 63.9 63.3 64.4
Noninterest expense to average total assets(2) 3.06 2.89 2.34
Adjusted noninterest expense to average total assets(1)(2) 2.56 2.52 2.32
Total assets $8,430,566 $8,498,404 $7,070,641
Loans receivable 5,747,741 5,722,238 4,774,855
Total deposits 7,038,706 7,248,537 5,784,413
Loan to deposit ratio(3) 81.7 % 78.9 % 82.5 %
Book value per share $27.13 $27.05 $26.16
Tangible book value per share(1) 19.15 19.07 18.99
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the
comparable GAAP financial measure.
(2)
Annualized.
(3)
Loans receivable divided by total deposits.
Investment Securities
Total investment securities decreased $36.1 million, or 2.2%, to $1.63 billion at June 30, 2026, from $1.67 billion at March 31, 2026. The Company sold $38.1 million of investment securities at a pre-tax loss of $217,000 during the quarter. In addition, there were investment maturities and repayments of $35.8 million and a $6.4 million increase in unrealized losses on available for sale securities during the second quarter of 2026. These decreases to carrying value were partially offset by investment security purchases of $44.0 million during the second quarter of 2026.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:
June 30, 2026 March 31, 2026 Change
Balance % of Balance % of
$ %
Total Total
(Dollars in thousands)
Investment securities available for sale, at fair value:
U.S. government and agency securities $11,823 0.7 % $11,861 0.7 % $(38) (0.3) %
Municipal securities 64,390 3.9 63,972 3.8 418 0.7
Residential CMO and MBS(1) 496,178 30.4 497,228 29.8 (1,050) (0.2)
Commercial CMO and MBS(1) 363,713 22.2 396,816 23.7 (33,103) (8.3)
Corporate obligations 16,423 1.0 11,580 0.7 4,843 41.8
Other asset-backed securities 18,910 1.2 19,691 1.2 (781) (4.0)
Total $971,437 59.4 % $1,001,148 59.9 % $(29,711) (3.0) %
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities $151,363 9.3 % $151,341 9.1 % $22 - %
Residential CMO and MBS(1) 207,387 12.7 213,096 12.8 (5,709) (2.7)
Commercial CMO and MBS(1) 303,089 18.6 303,826 18.2 (737) (0.2)
Total $661,839 40.6 % $668,263 40.1 % $(6,424) (1.0) %
Total investment securities $1,633,276 100.0 % $1,669,411 100.0 % $(36,135) (2.2) %
(1) U.S. government agency and government-sponsored enterprise CMO
and MBS.
Loans Receivable
Loans receivable increased $25.5 million, or 0.4%, during the second quarter of 2026. New loans funded during the second quarter of 2026 were $162.2 million, an increase from new loans funded during the first quarter of 2026 of $97.0 million and new loans funded during the second quarter of 2025 of $139.9 million. Loan prepayments were higher at $102.5 million during the second quarter of 2026, compared to $72.5 million during the first quarter of 2026. Loan payoffs were slightly higher at $49.9 million, compared to $46.5 million in the first quarter of 2026.
Commercial and industrial loans decreased $8.2 million, or 0.8%, during the second quarter of 2026, due primarily to pay downs on outstanding balances, partially offset by new loan production of $34.5 million. Owner-occupied commercial real estate ("CRE") loans increased $14.1 million, or 1.2%, during the second quarter, due primarily to new loan production of $41.8 million, offset by pay downs on outstanding balances. Non-owner occupied CRE loans increased $42.9 million, or 1.7%, during the quarter, due primarily to new loan production of $55.7 million, offset by pay downs on outstanding balances. Residential construction increased $13.2 million, or 10.7%, during the second quarter, due primarily to new loan production of $18.9 million, partially offset by pay downs on outstanding balances. Commercial and multifamily construction loans decreased $28.5 million or 9.9%, during the quarter, due primarily to pay downs on outstanding balances.
The following table summarizes the Company's loans receivable at the dates indicated:
June 30, 2026 March 31, 2026 Change
Balance % of Balance % of
$ %
Total Total
(Dollars in thousands)
Commercial business:
Commercial and industrial $1,051,269 18.3 % $1,059,457 18.5 % $(8,188) (0.8) %
Owner-occupied CRE 1,227,674 21.4 1,213,585 21.2 14,089 1.2
Non-owner occupied CRE 2,509,283 43.6 2,466,417 43.1 42,866 1.7
Total commercial business 4,788,226 83.3 4,739,459 82.8 48,767 1.0
Residential real estate 348,838 6.1 361,384 6.3 (12,546) (3.5)
Real estate construction and land development:
Residential 136,595 2.4 123,409 2.2 13,186 10.7
Commercial and multifamily 259,947 4.5 288,493 5.0 (28,546) (9.9)
Total real estate construction and land 396,542 6.9 411,902 7.2 (15,360) (3.7)
development
Consumer 214,135 3.7 209,493 3.7 4,642 2.2
Loans receivable $5,747,741 100.0 % $5,722,238 100.0 % $25,503 0.4
Deposits
Total deposits decreased $209.8 million, or 2.9%, to $7.04 billion at June 30, 2026, from $7.25 billion at March 31, 2026.
Non-maturity deposits decreased by $138.4 million, or 2.3%, from March 31, 2026 due primarily to a decline in customer balances in noninterest bearing demand accounts as is typical in the second quarter of each year due to tax payments. Noninterest demand deposits declined mostly due a single deposit relationship which had approximately $67.0 million in funds which were deposited on a short-term basis in the first quarter of 2026 and withdrawn in the second quarter of 2026. Certificates of deposit declined $71.4 million during the second quarter of 2026 due mostly to the maturity of brokered certificates of deposit of $48.5 million.
The following table summarizes the Company's total deposits at the dates indicated:
June 30, 2026 March 31, 2026 Change
Balance % of Balance % of
$ %
Total Total
(Dollars in thousands)
Noninterest demand deposits $1,972,702 28.0 % $2,066,383 28.5 % $(93,681) (4.5) %
Interest bearing demand deposits 1,854,634 26.3 1,860,679 25.7 (6,045) (0.3)
Money market accounts 1,574,835 22.4 1,588,678 21.9 (13,843) (0.9)
Savings accounts 581,259 8.3 606,119 8.4 (24,860) (4.1)
Total non-maturity deposits 5,983,430 85.0 6,121,859 84.5 (138,429) (2.3)
Certificates of deposit 1,055,276 15.0 1,126,678 15.5 (71,402) (6.3)
Total deposits $7,038,706 100.0 % $7,248,537 100.0 % $(209,831) (2.9) %
Borrowings
Total borrowings increased $146.3 million to $166.3 million at June 30, 2026, compared to $20.0 million at March 31, 2026. All outstanding borrowings at June 30, 2026 were with the Federal Home Loan Bank ("FHLB") and mature in the third quarter of 2026.
Stockholders' Equity
Total stockholders' equity decreased $6.0 million, or 0.5%, to $1.11 billion at June 30, 2026, compared to $1.12 billion at March 31, 2026. This decrease was partially due to the repurchase of 372,343 shares of the Company's common stock, for an aggregate purchase price of $10.0 million, under the Company's current share repurchase plan.
The following table summarizes changes in stockholders' equity for the Company for the period indicated:
Quarter Ended
June 30,
2026
(In
thousands)
Balance, beginning of period $1,115,691
Net income 17,546
Cash dividends declared on common stock (10,002)
Common stock repurchased (10,112)
Other comprehensive loss (5,000)
Other 1,569
Balance, end of period $1,109,692
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements to be categorized as "well-capitalized" at June 30, 2026.
The following table summarizes the capital ratios for the Company at the dates indicated:
June 30, March 31,
2026 2026
Stockholders' equity to total assets 13.2 % 13.1 %
Tangible common equity to tangible assets (1) 9.7 9.6
Common equity tier 1 capital ratio (2) 12.1 12.2
Leverage ratio (2) 10.4 10.3
Tier 1 capital ratio (2) 12.5 12.5
Total capital ratio (2) 13.4 13.5
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the
comparable GAAP financial measure.
(2)
Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.
Allowance for Credit Losses and Provision for Credit Losses
The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.03% at June 30, 2026, compared to 1.06% at March 31, 2026. The decrease in the ACL as a percentage of loans was due primarily to a decrease in the weighted average life of loans in the real estate construction and land development segment and an incremental change in the mix of loans from loans which have a higher ACL percentage to those which have a lower ACL percentage.
During the second quarter of 2026, the Company recorded a $844,000 reversal of provision for credit losses on loans, compared to an $820,000 reversal of provision during the first quarter of 2026. During the second quarter of 2026, the Company recorded a $77,000 reversal of provision for credit losses on unfunded commitments, compared to a $210,000 reversal of provision for credit losses on unfunded commitments during the first quarter of 2026.
The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments ("ACL on Unfunded"), and the related (reversal of) provision for credit losses for the periods indicated:
As of or for the Quarter Ended
June 30, 2026 March 31, 2026 June 30, 2025
ACL on ACL on Total ACL on ACL on Total ACL on ACL on Total
Loans Unfunded Loans Unfunded Loans Unfunded
(Dollars in thousands)
Balance, beginning of $60,551 $1,185 $61,736 $52,584 $1,047 $53,631 $52,160 $647 $52,807
period
Initial ACL recorded for
$ - 9,339 348 $9,687
$ -
the Merger
(Reversal of) provision (844) (77) (921) (820) (210) (1,030) 863 93 956
for credit losses
(Net charge-offs) / (234) (234) (552) (552) (494) (494)
recoveries
Balance, end of period $59,473 $1,108 $60,581 $60,551 $1,185 $61,736 $52,529 $740 $53,269
Credit Quality
Classified loans (loans rated substandard or worse) decreased $15.9 million from the prior quarter due primarily to loan payoffs during the quarter. The percentage of classified loans to loans receivable decreased to 1.8% at June 30, 2026, compared to 2.1% at March 31, 2026.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
June 30, 2026 March 31, 2026
Balance % of Balance % of
Total Total
(Dollars in thousands)
Risk Rating:
Pass $5,517,189 96.0 % $5,497,208 96.1 %
Special Mention 125,108 2.2 103,699 1.8
Substandard 105,444 1.8 121,331 2.1
Total $5,747,741 100.0 % $5,722,238 100.0 %
Nonaccrual loans were $15.5 million at June 30, 2026, compared to $15.0 million at March 31, 2026. Two commercial and industrial loan relationships totaling $5.0 million were migrated to nonaccrual during the second quarter of 2026, and both were paid off prior to the end of the quarter.
The following table illustrates changes in nonaccrual loans during the periods indicated:
Quarter Ended
June 30, March 31, June 30,
2026 2026 2025
(Dollars in thousands)
Balance, beginning of period $14,958 $20,976 $4,438
Additions 5,988 3,388 7,922
Net principal payments (280) (261) (2,041)
Payoffs (5,156) (7,800)
Charge-offs (463) (454)
Transfer to OREO (741)
Return to accrual (141)
Balance, end of period $15,510 $14,958 $9,865
Nonaccrual loans to loans receivable 0.27 % 0.26 % 0.21 %
Liquidity
Total liquidity sources available at June 30, 2026 totaled $3.27 billion. This included on- and off-balance sheet liquidity. The Company has access to FHLB advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at June 30, 2026 represented a coverage ratio of 46.5% of total deposits and 118.9% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity as of the dates indicated:
Quarter Ended
June 30, March 31,
2026 2026
(Dollars in thousands)
On-balance sheet liquidity
Cash and cash equivalents $204,375 $268,143
Unencumbered investment securities available for sale (1) 949,021 978,332
Total on-balance sheet liquidity $1,153,396 $1,246,475
Off-balance sheet liquidity
FRB borrowing availability $339,029 $341,449
FHLB borrowing availability (2) 1,635,593 1,469,277
Fed funds line borrowing availability with correspondent banks 145,000 145,000
Total off-balance sheet liquidity $2,119,622 $1,955,726
Total available liquidity $3,273,018 $3,202,201
(1)
Investment securities available for sale at fair value.
(2) Includes FHLB total borrowing availability of $1.80 billion at June 30, 2026 based on pledged assets, however, maximum credit capacity
was 45% of the Bank's total assets one quarter in arrears or $3.82 billion.
Net Interest Income and Net Interest Margin
Net interest income increased $5.6 million, or 8.1%, during the second quarter of 2026 compared to the first quarter of 2026 due to a $7.0 million increase in total interest income, offset partially by an increase in interest expense of $1.4 million. The increase in net interest income was primarily due to one additional month of income attributable to the assets and liabilities obtained in the Merger which was completed on January 31, 2026.
Net interest margin increased three basis points to 3.99% during the second quarter of 2026, from 3.96% during the first quarter of 2026. The increase in net interest margin was due primarily to the increase in yield on investments and decreases in the cost of interest bearing deposits.
The yield on interest earning assets increased two basis points to 5.21% for the second quarter of 2026, compared to 5.19% for the first quarter of 2026. The increase was primarily due to an increase in yield on investments of 12 basis points to 3.55% for the second quarter of 2026, compared to 3.43% for the first quarter of 2026.
The yield on loans receivable decreased one basis point to 5.72% during the second quarter of 2026, compared to 5.73% during the first quarter of 2026. The decrease was due primarily to recovery of interest income on nonaccrual loans recognized in the first quarter of 2026 which contributed six basis points to loan yield for the first quarter of 2026 and had no impact in the second quarter of 2026. Loan yield also benefited from the incremental accretion on purchased loans in both the first and second quarter of 2026.
The following table presents the net interest margin and loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods indicated:
Quarter Ended
June 30, March 31, June 30,
2026 2026 2025
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
---
Net interest margin 3.99 % 3.96 % 3.51 %
Exclude impact from incremental accretion on purchased loans(2) (0.09) % (0.09) % (0.01) %
Net interest margin, excluding incremental accretion on purchased 3.90 % 3.87 % 3.50 %
loans(1)
Loan yield, excluding incremental accretion on purchased loans, annualized:
---
Loan yield 5.72 % 5.73 % 5.50 %
Exclude impact from incremental accretion on purchased loans(2) (0.12) (0.12) (0.01)
Loan yield, excluding incremental accretion on purchased loans(1) 5.60 % 5.61 % 5.49 %
Incremental accretion on purchased loans(1) $1,772 $1,623 $76
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP
financial measure.
(2) Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the
individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference
between the contractual loan balance and the fair value of acquired loans at the acquisition date. The purchased discount is accreted
into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period
based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.
The cost of interest bearing deposits decreased four basis points to 1.67% for the second quarter of 2026, from 1.71% for the first quarter of 2026. This decrease was primarily due to one additional month of interest expense on deposits acquired from Olympic, which had a lower cost of deposits.
Net interest margin increased 48 basis points to 3.99% during the second quarter of 2026, compared to 3.51% for the same period in the prior year. Net interest income increased $19.8 million, or 36.1%, during the second quarter of 2026 compared to the same period in the prior year, due to a combination of an increase in average interest earning assets, which increased substantially as a result of the Merger, and an increase in net interest margin.
The following table provides net interest income information for the periods indicated:
Quarter Ended
June 30, 2026 March 31, 2026 June 30, 2025
Average Interest Average Average Interest Average Average Interest Average
Yield/ Yield/ Yield/
Rate Rate Rate
Balance Earned/ (1) Balance Earned/ (1) Balance Earned/ (1)
Paid Paid Paid
(Dollars in thousands)
Interest Earning Assets:
Loans receivable (2)(3) $5,740,927 $81,935 5.72 % $5,412,943 $76,445 5.73 % $4,768,558 $65,373 5.50 %
Taxable securities 1,635,979 14,464 3.55 1,486,343 12,570 3.43 1,374,770 11,579 3.38
Nontaxable securities (3) 15,439 128 3.33 15,662 129 3.34 15,294 137 3.59
Interest earning deposits 124,969 1,147 3.68 172,723 1,531 3.59 127,687 1,411 4.43
Total interest earning assets 7,517,314 97,674 5.21 % 7,087,671 90,675 5.19 % 6,286,309 78,500 5.01 %
Noninterest earning assets 920,006 847,331 760,634
Total assets $8,437,320 $7,935,002 $7,046,943
Interest Bearing Liabilities:
Certificates of deposit $1,090,406 $8,817 3.24 % $1,064,676 $8,814 3.36 % $979,997 $9,349 3.83 %
Savings accounts 591,458 348 0.24 540,403 315 0.24 425,703 288 0.27
Interest bearing demand and 3,444,901 12,226 1.42 3,303,007 11,618 1.43 2,770,352 10,513 1.52
money market accounts
Total interest bearing deposits 5,126,765 21,391 1.67 4,908,086 20,747 1.71 4,176,052 20,150 1.94
Junior subordinated debentures 22,455 431 7.70 22,382 430 7.79 22,165 472 8.54
Borrowings 105,131 1,036 3.95 27,111 279 4.17 245,663 2,895 4.73
Total interest bearing 5,254,351 22,858 1.74 % 4,957,579 21,456 1.76 % 4,443,880 23,517 2.12 %
liabilities
Noninterest demand deposits 1,973,038 1,833,284 1,602,987
Other noninterest bearing 97,753 95,095 120,268
liabilities
Stockholders' equity 1,112,178 1,049,044 879,808
Total liabilities and $8,437,320 $7,935,002 $7,046,943
stockholders' equity
Net interest income and spread $74,816 3.47 % $69,219 3.43 % $54,983 2.89 %
Net interest margin 3.99 % 3.96 % 3.51 %
(1)
Annualized; average balances are calculated using daily balances.
(2) Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable
includes the amortization of net deferred loan fees of $1.1 million, $0.8 million and $0.9 million for the second quarter of 2026,
first quarter of 2026 and second quarter of 2025, respectively, and the incremental accretion on purchased loans of $1.8 million,
$1.6 million, and $76,000 for the second quarter of 2026, first quarter of 2026 and second quarter of 2025, respectively.
(3)
Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
Noninterest Income
Noninterest income increased $612,000 to $9.3 million during the second quarter of 2026 from $8.7 million during the first quarter of 2026. The increase was due primarily to increases in service charges and other fees, card revenue and BOLI income due to an additional month of income from the deposit portfolio and bank owned life insurance ("BOLI") acquired from Olympic.
Noninterest income increased $7.8 million during the second quarter of 2026 from the same period in 2025 due primarily to a $6.9 million loss recognized in the second quarter of 2025 resulting from the sale of investment securities as part of the strategic repositioning of the Company's balance sheet, and due to increases in service charges and other fees, card revenue, and BOLI income due to income from the deposit portfolio and BOLI acquired from Olympic.
The following table presents the key components of noninterest income and the change for the periods indicated:
Quarter Ended Quarter Over Prior Year
Quarter Change
Quarter Change
June 30, March 31, June 30,
$ %
$ %
2026 2026 2025
(Dollars in thousands)
Service charges and other fees $3,592 $3,367 $2,932 $225 6.7 % $660 22.5 %
Card revenue 2,595 2,103 2,008 492 23.4 587 29.2
Loss on sale of investment securities (217) (6,854) (217) 6,637 96.8
Interest rate swap fees 3 19 3 (16) (84.2)
BOLI income 1,485 1,119 1,280 366 32.7 205 16.0
Gain on sale of other assets, net 5 (5) (100.0)
Other income 1,853 2,110 2,127 (257) (12.2) (274) (12.9)
Total noninterest income (loss) $9,311 $8,699 $1,517 $612 7.0 % $7,794 513.8 %
Noninterest Expense
Noninterest expense increased $7.8 million, or 13.7%, to $64.3 million during the second quarter of 2026, compared to $56.6 million in the first quarter of 2026. The increase was primarily due to one additional month of expense related to the Merger, including increases related to compensation and employee benefits from increased headcount, occupancy and equipment expense primarily due to additional rent expense, and additional data processing expense due to an increase in transactional accounts and balances.
Merger related expenses, which consisted of severance expense, professional fees, core conversion costs, and contract termination costs incurred in the second quarter of 2026 were $7.5 million compared to $5.2 million in the first quarter of 2026.
The following table presents merger related expenses included in noninterest expense and the change for the periods indicated:
Quarter Ended Change
June 30, March 31,
$
2026 2026
(Dollars in thousands)
Compensation and employee benefits $1,481 $2,733 $(1,252)
Data processing 4,924 491 4,433
Professional services 128 1,868 (1,740)
Other expense 960 86 874
Total noninterest expense $7,493 $5,178 $2,315
Noninterest expense also increased due to the increase in the amortization of intangible assets of $0.9 million, as a result of one additional month of amortization related to the acquisition of Olympic.
Noninterest expense increased $23.2 million, or 56.6%, during the second quarter of 2026 compared to the same period in 2025 due primarily to an increase in expenses related to the Merger and the addition of Olympic operations.
The following table presents the key components of noninterest expense and the change for the periods indicated:
Quarter Ended Quarter Over Prior Year
Quarter Change Quarter Change
June 30, March 31, June 30,
$ %
$ %
2026 2026 2025
(Dollars in thousands)
Compensation and employee benefits $35,769 $33,972 $25,467 $1,797 5.3 % $10,302 40.5 %
Occupancy and equipment 6,014 5,330 4,840 684 12.8 1,174 24.3
Data processing 10,218 5,093 3,666 5,125 100.6 6,552 178.7
Marketing 437 383 336 54 14.1 101 30.1
Professional services 939 2,842 1,122 (1,903) (67.0) (183) (16.3)
State/municipal business and use taxes 1,801 1,674 1,205 127 7.6 596 49.5
Federal deposit insurance premium 881 1,037 810 (156) (15.0) 71 8.8
Other real estate owned, net 44 4 40 1000.0 44
Amortization of intangible assets 2,957 2,058 302 899 43.7 2,655 879.1
Other expense 5,264 4,158 3,337 1,106 26.6 1,927 57.7
Total noninterest expense $64,324 $56,551 $41,085 $7,773 13.7 % $23,239 56.6 %
Income Tax Expense
Income tax expense decreased $272,000 in the second quarter of 2026, compared to the first quarter of 2026 due to lower pre-tax income during the second quarter of 2026.
Income tax expense increased $934,000 in the second quarter of 2026, compared to the same period in 2025 due primarily to higher pre-tax income during the second quarter of 2026.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended Change
June 30, March 31, June 30, Quarter Over Prior Year
2026 2026 2025 Quarter Quarter
(Dollars in thousands)
Income before income taxes $20,724 $22,397 $14,459 $(1,673) $6,265
Income tax expense $3,178 $3,450 $2,244 $(272) $934
Effective income tax rate 15.3 % 15.4 % 15.5 % (0.1) % (0.2) %
Dividends
On July 22, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend is payable on August 19, 2026 to shareholders of record as of the close of business on August 5, 2026.
Earnings Conference Call
The Company will hold a telephone conference call to discuss second quarter of 2026 earnings on Thursday, July 23, 2026 at 9:00 a.m. Pacific time. Participants may register for the call at the following link: https://registrations.events/direct/Q4I5378922. To access the call via telephone, please dial (888) 500-3691 -- access code 53789 a few minutes prior to 9:00 a.m. Pacific time. The conference call will be recorded and will be available for replay through August 6, 2026 at the following link: https://registrations.events/direct/Q4I5378922
About Heritage Financial Corporation
Heritage Financial Corporation (the "Company") is an Olympia, Washington-based bank holding company for Heritage Bank, a full-service commercial bank and its sole wholly-owned banking subsidiary. Heritage Bank has a network of branches and loan production offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington and the Kitsap Bank name at certain branches acquired through the acquisition of Olympic Bancorp, Inc. The Company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA." More information about the Company can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.
Forward-Looking Statements
This press release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends 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. Such statements often include words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets, including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages and a potential recession or slowed economic growth; changes in the interest rate environment, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System and executive orders in response thereto; previous and potential future disruptions, security breaches, insider fraud, cybersecurity incidents or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax laws, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; effects on the U.S. economy resulting from actions taken by the federal government, including the threat or implementation of tariffs, immigration enforcement and changes in foreign policy; the effects of acts of war or terrorism, foreign relations, military conflicts, including the wars in Iran and Ukraine, ongoing conflicts in the Middle East, and other international military conflicts that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, affect global supply chains, increase the volatility of financial markets, and other matters beyond our control; effects of other external events on our business and the businesses of our clients; credit and interest rate risks associated with our business, including our customers' borrowing, repayment, and deposit practices; fluctuations in deposits and the concentration of large deposits from certain customers, who have deposit balances above current FDIC insurance limits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; fluctuations in the value of our investment securities; credit risks and risks from concentrations (including by type of geographic area, collateral and industry) within our loan portfolio; the effectiveness of our risk management framework; rapid technological changes implemented by us and other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; increased competition in the financial services industry from non-banks such as credit unions and financial technology companies, including digital asset service providers; our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action, damage our reputation or otherwise materially harm our business or customers; our ability to implement our organic and acquisition growth strategies, including the recent acquisition of Olympic, and our ability to successfully integrate Olympic's customers and operations following the acquisition; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject, including in connection with prior acquisitions; potential impairment to the goodwill we recorded in connection with our past acquisitions, including as a result of the recent acquisition of Olympic; loss of, or inability to attract, key personnel; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire, including as a result of the recent acquisition of Olympic, into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; the extensive regulatory framework that applies to us; the overall health of local and national real estate markets; the level of nonperforming assets on our balance sheet; risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar; changes in consumer spending, borrowing and saving habits; the availability of future equity and debt issuances and other capital raising opportunities on favorable terms; our success at managing and responding to the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the "SEC") which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. Forward-looking statements speak only as of the date they are made, and we do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except shares)
June 30, March 31, December 31,
2026 2026 2025
Assets
---
Cash on hand and in banks $102,555 $98,263 $52,587
Interest earning deposits 101,820 169,880 180,502
Cash and cash equivalents 204,375 268,143 233,089
Investment securities available for sale, at fair value (amortized cost of 971,437 1,001,148 607,522
$1,020,125, $1,043,442 and $647,505, respectively)
Investment securities held to maturity, at amortized cost (fair value of 661,839 668,263 674,107
$607,782, $617,490 and $625,287, respectively)
Total investment securities 1,633,276 1,669,411 1,281,629
Loans receivable 5,747,741 5,722,238 4,783,266
Allowance for credit losses on loans (59,473) (60,551) (52,584)
Loans receivable, net 5,688,268 5,661,687 4,730,682
Other real estate owned 755 755
Premises and equipment, net 98,034 100,509 74,690
Federal Home Loan Bank stock, at cost 12,653 6,072 5,163
BOLI 146,350 144,865 105,974
Accrued interest receivable 23,056 24,278 19,280
Prepaid expenses and other assets 297,501 293,429 273,925
Other intangible assets, net 47,269 50,226 1,979
Goodwill 279,029 279,029 240,939
Total assets $8,430,566 $8,498,404 $6,967,350
Liabilities and Stockholders' Equity
---
Non-interest bearing deposits $1,972,702 $2,066,383 $1,597,650
Interest bearing deposits 5,066,004 5,182,154 4,322,549
Total deposits 7,038,706 7,248,537 5,920,199
Borrowings 166,250 20,000 20,000
Junior subordinated debentures 22,497 22,424 22,350
Accrued expenses and other liabilities 93,421 91,752 83,297
Total liabilities 7,320,874 7,382,713 6,045,846
Common stock 707,889 716,432 531,100
Retained earnings 439,799 432,255 421,619
Accumulated other comprehensive loss, net (37,996) (32,996) (31,215)
Total stockholders' equity 1,109,692 1,115,691 921,504
Total liabilities and stockholders' equity $8,430,566 $8,498,404 $6,967,350
Shares outstanding 40,906,122 41,249,873 33,963,500
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2026 2026 2025 2026 2025
Interest Income
---
Interest and fees on loans $81,935 $76,445 $65,373 $158,380 $129,809
Taxable interest on investment securities 14,464 12,570 11,579 27,034 23,318
Nontaxable interest on investment securities 128 129 137 257 276
Interest on interest earning deposits 1,147 1,531 1,411 2,678 2,463
Total interest income 97,674 90,675 78,500 188,349 155,866
Interest Expense
---
Deposits 21,391 20,747 20,150 42,138 39,639
Junior subordinated debentures 431 430 472 861 943
Borrowings 1,036 279 2,895 1,315 6,611
Total interest expense 22,858 21,456 23,517 44,314 47,193
Net interest income 74,816 69,219 54,983 144,035 108,673
(Reversal of) provision for credit losses (921) (1,030) 956 (1,951) 1,007
Net interest income after (reversal of) 75,737 70,249 54,027 145,986 107,666
provision for credit losses
Noninterest Income
---
Service charges and other fees 3,592 3,367 2,932 6,959 5,907
Card revenue 2,595 2,103 2,008 4,698 3,741
Loss on sale of investment securities, net (217) (6,854) (217) (10,741)
Interest rate swap fees 3 19 3 19
BOLI income 1,485 1,119 1,280 2,604 2,198
Gain on sale of other assets, net - 5 8
Other income 1,853 2,110 2,127 3,963 4,288
Total noninterest income (loss) 9,311 8,699 1,517 18,010 5,420
Noninterest Expense
---
Compensation and employee benefits 35,769 33,972 25,467 69,741 51,266
Occupancy and equipment 6,014 5,330 4,840 11,344 9,766
Data processing 10,218 5,093 3,666 15,311 7,563
Marketing 437 383 336 820 671
Professional services 939 2,842 1,122 3,781 1,856
State/municipal business and use taxes 1,801 1,674 1,205 3,475 2,425
Federal deposit insurance premium 881 1,037 810 1,918 1,622
Other real estate owned, net 44 4 48
Amortization of intangible assets 2,957 2,058 302 5,015 605
Other expense 5,264 4,158 3,337 9,422 6,694
Total noninterest expense 64,324 56,551 41,085 120,875 82,468
Income before income taxes 20,724 22,397 14,459 43,121 30,618
Income tax expense 3,178 3,450 2,244 6,628 4,492
Net income $17,546 $18,947 $12,215 $36,493 $26,126
Basic earnings per share $0.42 $0.49 $0.36 $0.91 $0.77
Diluted earnings per share $0.42 $0.48 $0.36 $0.90 $0.76
Dividends declared per share $0.24 $0.24 $0.24 $0.48 $0.48
Average shares outstanding - basic 41,079,781 38,683,375 34,028,592 39,888,198 34,037,067
Average shares outstanding - diluted 41,541,763 39,104,569 34,446,710 40,364,364 34,512,260
HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Average Balances, Yields, and Rates Paid:
---
Six Months Ended June 30,
2026 2025
Average Interest Average Average Interest Average
Yield/ Yield/
Rate Rate
Balance Earned/ (1) Balance Earned/ (1)
Paid Paid
Interest Earning Assets:
Loans receivable(2)(3) $5,577,841 $158,380 5.73 % $4,781,167 $129,809 5.48 %
Taxable securities 1,561,574 27,034 3.49 1,401,226 23,318 3.36
Nontaxable securities(3) 15,550 257 3.33 15,489 276 3.59
Interest earning deposits 148,715 2,678 3.63 111,990 2,463 4.44
Total interest earning assets 7,303,680 188,349 5.20 % 6,309,872 155,866 4.98 %
Noninterest earning assets 883,869 765,058
Total assets $8,187,549 $7,074,930
Interest Bearing Liabilities:
Certificates of deposit $1,077,612 $17,631 3.30 % $980,166 $19,019 3.91 %
Savings accounts 566,072 663 0.24 426,010 581 0.28
Interest bearing demand and money market accounts 3,374,345 23,844 1.42 2,738,197 20,039 1.48
Total interest bearing deposits 5,018,029 42,138 1.69 4,144,373 39,639 1.93
Junior subordinated debentures 22,419 861 7.74 22,126 943 8.59
Borrowings 66,337 1,315 4.00 282,768 6,611 4.71
Total interest bearing liabilities 5,106,785 44,314 1.75 % 4,449,267 47,193 2.14 %
Noninterest demand deposits 1,903,547 1,617,050
Other noninterest bearing liabilities 96,432 135,358
Stockholders' equity 1,080,785 873,255
Total liabilities and stockholders' equity $8,187,549 $7,074,930
Net interest income and spread $144,035 3.45 % $108,673 2.84 %
Net interest margin 3.98 % 3.47 %
(1)
Annualized; average balances are calculated using daily balances.
(2) Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable
includes the amortization of net deferred loan fees of $1.9 million and $1.7 million for the six months ended June 30, 2026 and
2025, respectively, and incremental accretion on purchased loans of $3.4 million and $229,000, for the six months ended June 30,
2026 and 2025, respectively.
(3)
Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:
---
Quarter Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2026 2026 2025 2026 2025
Allowance for Credit Losses on Loans:
---
Balance, beginning of period $60,551 $52,584 $52,160 $52,584 $52,468
Initial ACL recorded for PSL and PCD - 9,339 9,339
loans acquired during the period
(Reversal of) provision for credit (844) (820) 863 (1,664) 854
losses on loans
Charge-offs:
---
Commercial business (180) (400) (454) (580) (676)
Residential real estate - (64) (64)
Consumer (89) (119) (104) (208) (258)
Total charge-offs (269) (583) (558) (852) (934)
Recoveries:
---
Commercial business 4 4 18 8 44
Residential real estate 2 2
Consumer 29 27 46 56 97
Total recoveries 35 31 64 66 141
Net (charge-offs) recoveries (234) (552) (494) (786) (793)
Balance, end of period $59,473 $60,551 $52,529 $59,473 $52,529
Net charge-offs on loans to average 0.02 % 0.04 % 0.04 % 0.03 % 0.03 %
loans receivable annualized
June 30, March 31, December 31,
2026 2026 2025
Nonperforming Assets:
---
Nonaccrual loans:
Commercial business $7,437 $7,454 $6,886
Residential real estate 1,338 583 1,196
Real estate construction and land development 6,420 6,514 12,408
Consumer 315 407 486
Total nonaccrual loans 15,510 14,958 20,976
Accruing loans past due 90 days or more 67 194
Total nonperforming loans 15,510 15,025 21,170
Other real estate owned 755 755
Nonperforming assets $16,265 $15,780 $21,170
ACL on loans to:
Loans receivable 1.03 % 1.06 % 1.10 %
Nonaccrual loans 383.45 % 404.81 % 250.69 %
Nonaccrual loans to loans receivable 0.27 % 0.26 % 0.44 %
Nonperforming loans to loans receivable 0.27 % 0.26 % 0.44 %
Nonperforming assets to total assets 0.19 % 0.19 % 0.30 %
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Earnings:
---
Net interest income $74,816 $69,219 $58,361 $57,371 $54,983
(Reversal of) provision for credit losses (921) (1,030) (814) 1,775 956
Noninterest income 9,311 8,699 7,987 8,325 1,517
Noninterest expense 64,324 56,551 41,483 41,615 41,085
Net income 17,546 18,947 22,237 19,169 12,215
Basic earnings per share $0.42 $0.49 $0.66 $0.56 $0.36
Diluted earnings per share $0.42 $0.48 $0.65 $0.55 $0.36
Adjusted diluted earnings per share (1) $0.57 $0.59 $0.66 $0.56 $0.53
Average Balances:
---
Loans receivable $5,740,927 $5,412,943 $4,770,300 $4,762,648 $4,768,558
Total investment securities 1,651,418 1,502,005 1,301,526 1,329,616 1,390,064
Total interest earning assets 7,517,314 7,087,671 6,223,303 6,258,446 6,286,309
Total assets 8,437,320 7,935,002 6,954,110 7,006,140 7,046,943
Total interest bearing deposits 5,126,765 4,908,086 4,250,589 4,217,041 4,176,052
Total noninterest demand deposits 1,973,038 1,833,284 1,635,539 1,625,945 1,602,987
Stockholders' equity 1,112,178 1,049,044 911,454 892,280 879,808
Financial Ratios:
---
Return on average assets (2) 0.83 % 0.97 % 1.27 % 1.09 % 0.70 %
Adjusted return on average assets (1)(2) 1.12 % 1.18 % 1.29 % 1.11 % 1.03 %
Return on average common equity (2) 6.33 7.32 9.68 8.52 5.57
Return on average tangible common 10.17 11.14 13.33 11.86 7.85
equity (1)(2)
Adjusted return on average tangible 13.29 13.36 13.51 12.16 11.59
common equity (1)(2)
Efficiency ratio 76.5 72.6 62.5 63.3 72.7
Adjusted efficiency ratio (1) 63.9 63.3 61.5 61.9 64.4
Noninterest expense to average total 3.06 2.89 2.37 2.36 2.34
assets (2)
Adjusted noninterest expense to 2.56 2.52 2.33 2.30 2.32
average total assets(1)(2)
Net interest spread (2) 3.47 3.43 3.15 3.03 2.89
Net interest margin (2) 3.99 3.96 3.72 3.64 3.51
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the
comparable GAAP financial measure.
(2)
Annualized.
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
As of or for the Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Select Balance Sheet:
---
Total assets $8,430,566 $8,498,404 $6,967,350 $7,011,879 $7,070,641
Loans receivable 5,747,741 5,722,238 4,783,266 4,769,160 4,774,855
Total investment securities 1,633,276 1,669,411 1,281,629 1,312,857 1,346,274
Total deposits 7,038,706 7,248,537 5,920,199 5,857,464 5,784,413
Noninterest demand deposits 1,972,702 2,066,383 1,597,650 1,617,909 1,584,231
Stockholders' equity 1,109,692 1,115,691 921,504 904,064 888,212
Financial Measures:
---
Book value per share $27.13 $27.05 $27.13 $26.62 $26.16
Tangible book value per share (1) 19.15 19.07 19.98 19.46 18.99
Stockholders' equity to total assets 13.2 % 13.1 % 13.2 % 12.9 % 12.6 %
Tangible common equity to tangible 9.7 9.6 10.1 9.8 9.4
assets (1)
Loans to deposits ratio 81.7 78.9 80.8 81.4 82.5
Regulatory Capital Ratios:
(2)
---
Common equity tier 1 capital ratio 12.1 % 12.2 % 12.7 % 12.4 % 12.2 %
Leverage ratio 10.4 10.3 10.8 10.5 10.3
Tier 1 capital ratio 12.5 12.5 13.1 12.8 12.6
Total capital ratio 13.4 13.5 14.1 13.8 13.6
Credit Quality Metrics:
---
ACL on loans to:
Loans receivable 1.03 % 1.06 % 1.10 % 1.13 % 1.10 %
Nonaccrual loans 383.4 404.8 250.7 306.5 532.5
Nonaccrual loans to loans receivable 0.27 0.26 0.44 0.37 0.21
Nonperforming loans to loans 0.27 0.26 0.44 0.44 0.39
receivable
Nonperforming assets to total assets 0.19 0.19 0.30 0.30 0.26
Net charge-offs on loans to average 0.02 0.04 0.04 0.01 0.04
loans receivable (3)
Criticized Loans by Credit Quality Rating:
---
Special mention $125,108 $103,699 $71,122 $100,160 $114,146
Substandard 105,444 121,331 116,823 94,377 99,715
Other Metrics:
---
Number of branches 66 65 50 50 50
Deposits per branch $106,647 $111,516 $118,404 $117,149 $115,688
Average number of full-time equivalent 976 905 742 749 745
employees
Average assets per full-time 8,645 8,768 9,372 9,354 9,459
equivalent employee
(1)
See Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are estimates pending completion and filing of the
Company's regulatory reports.
(3)
Annualized.
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
This earnings release contains certain financial measures not presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP financial measures used in this earnings release to the comparable GAAP financial measures are presented below.
The Company believes that presenting the adjusted diluted earnings per share provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Diluted Earnings per Share and Adjusted Diluted Earnings per Share:
---
Net income (GAAP) $17,546 $18,947 $22,237 $19,169 $12,215
Exclude loss on sale of 217 6,854
investment securities, net
Exclude merger related costs 7,493 5,178 385 635
Exclude gain on sale of premises - (5)
and equipment
Exclude tax effect of adjustment (1,619) (1,087) (81) (133) (1,438)
Exclude tax expense related to - 515
BOLI restructuring
Adjusted net income (non-GAAP) $23,637 $23,038 $22,541 $19,671 $18,141
Average number of diluted shares 41,541,763 39,104,569 34,405,793 34,413,386 34,446,710
outstanding
Diluted earnings per share (GAAP) $0.42 $0.48 $0.65 $0.55 $0.36
Adjusted diluted earnings per share $0.57 $0.59 $0.66 $0.56 $0.53
(non-GAAP)
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes that presenting an adjusted return on average assets ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Adjusted Return on Average Assets ("ROAA"):
---
Net income (GAAP) $17,546 $18,947 $22,237 $19,169 $12,215
Exclude (gain) loss on sale of 217 6,854
investment securities, net
Exclude merger related costs 7,493 5,178 385 635
Exclude gain on sale of premise - (5)
and equipment
Exclude tax effect of adjustments (1,619) (1,087) (81) (133) (1,438)
Exclude tax expense related to - 515
BOLI restructuring
Adjusted net income (non-GAAP) $23,637 $23,038 $22,541 $19,671 $18,141
Average ("Avg") total assets $8,437,320 $7,935,002 $6,954,110 $7,006,140 $7,046,943
ROAA, annualized (GAAP) 0.83 % 0.97 % 1.27 % 1.09 % 0.70 %
Adjusted ROAA, annualized (non- 1.12 % 1.18 % 1.29 % 1.11 % 1.03 %
GAAP)
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company's capital levels.
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
---
Total stockholders' equity (GAAP) $1,109,692 $1,115,691 $921,504 $904,064 $888,212
Exclude intangible assets (326,298) (329,255) (242,918) (243,203) (243,487)
Tangible common equity (non-GAAP) $783,394 $786,436 $678,586 $660,861 $644,725
Total assets (GAAP) $8,430,566 $8,498,404 $6,967,350 $7,011,879 $7,070,641
Exclude intangible assets (326,298) (329,255) (242,918) (243,203) (243,487)
Tangible assets (non-GAAP) $8,104,268 $8,169,149 $6,724,432 $6,768,676 $6,827,154
Stockholders' equity to total assets 13.2 % 13.1 % 13.2 % 12.9 % 12.6 %
(GAAP)
Tangible common equity to tangible 9.7 % 9.6 % 10.1 % 9.8 % 9.4 %
assets (non-GAAP)
Shares outstanding 40,906,122 41,249,873 33,963,500 33,956,738 33,953,194
Book value per share (GAAP) $27.13 $27.05 $27.13 $26.62 $26.16
Tangible book value per share (non- $19.15 $19.07 $19.98 $19.46 $18.99
GAAP)
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Return on Average Tangible Common Equity, annualized:
---
Net income (GAAP) $17,546 $18,947 $22,237 $19,169 $12,215
Add amortization of intangible 2,957 2,058 285 284 302
assets
Exclude tax effect of adjustment (621) (432) (60) (60) (63)
Tangible net income (non-GAAP) $19,882 $20,573 $22,462 $19,393 $12,454
Tangible net income (non-GAAP) $19,882 $20,573 $22,462 $19,393 $12,454
Exclude loss on sale of 217 6,854
investment securities, net
Exclude merger related costs 7,493 5,178 385 635
Exclude gain on sale of premises - (5)
and equipment
Exclude tax effect of adjustment (1,619) (1,087) (81) (133) (1,438)
Exclude tax expense related to - 515
BOLI restructuring
Adjusted tangible net income (non- $25,973 $24,664 $22,766 $19,895 $18,380
GAAP)
Average stockholders' equity (GAAP) $1,112,178 $1,049,044 $911,454 $892,280 $879,808
Exclude average intangible assets (328,166) (300,391) (243,069) (243,350) (243,651)
Average tangible common $784,012 $748,653 $668,385 $648,930 $636,157
stockholders' equity (non-GAAP)
Return on average common equity, 6.33 % 7.32 % 9.68 % 8.52 % 5.57 %
annualized (GAAP)
Return on average tangible common equity, 10.17 % 11.14 % 13.33 % 11.86 % 7.85 %
annualized (non-GAAP)
Adjusted return on average tangible 13.29 % 13.36 % 13.51 % 12.16 % 11.59 %
common equity, annualized (non-
GAAP)
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes that presenting an adjusted efficiency ratio and adjusted noninterest expense to average assets ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2026 2026 2025 2025 2025
Adjusted Efficiency Ratio and Adjusted Noninterest Expense to Average Assets Ratio:
---
Total noninterest expense (GAAP) $64,324 $56,551 $41,483 $41,615 $41,085
Exclude merger related costs 7,493 5,178 385 635
Exclude amortization of intangible 2,957 2,058 285 284 302
assets
Adjusted noninterest expense (non- $53,874 $49,315 $40,813 $40,696 $40,783
GAAP)
Net interest income (GAAP) $74,816 $69,219 $58,361 $57,371 $54,983
Total noninterest income (GAAP) $9,311 $8,699 $7,987 $8,325 $1,517
Exclude loss on sale of 217 6,854
investment securities, net
Exclude gain on sale of premises - (5)
and equipment
Adjusted total noninterest income $9,528 $8,699 $7,987 $8,325 $8,366
(non-GAAP)
Efficiency ratio (GAAP) 76.5 % 72.6 % 62.5 % 63.3 % 72.7 %
Adjusted efficiency ratio (non-GAAP) 63.9 % 63.3 % 61.5 % 61.9 % 64.4 %
Average Total assets $8,437,320 $7,935,002 $6,954,110 $7,006,140 $7,046,943
Noninterest expense to average 3.06 % 2.89 % 2.37 % 2.36 % 2.34 %
assets (GAAP) (1)
Adjusted noninterest expense to 2.56 % 2.52 % 2.33 % 2.30 % 2.32 %
average assets (non-GAAP) (1)
(1) Annualized.
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes presenting loan yield and net interest margin excluding the effect of discount accretion on purchased loans is useful in assessing the impact of acquisition accounting on loan yield as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off our balance sheet.
Three Months Ended
June 30, March 31, June 30,
2026 2026 2025
(Dollar amounts in thousands)
Loan yield, excluding incremental accretion on purchased loans, annualized:
---
Interest and fees on loans (GAAP) $81,935 $76,445 $65,373
Exclude incremental accretion on purchased loans 1,772 1,623 76
Adjusted interest and fees on loans (non-GAAP) $80,163 $74,822 $65,297
Average loans receivable, net (GAAP) $5,740,927 $5,412,943 $4,768,558
Loan yield, annualized (GAAP) 5.72 % 5.73 % 5.50 %
Loan yield, excluding incremental accretion on purchased loans, 5.60 % 5.61 % 5.49 %
annualized (non-GAAP)
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
---
Net interest income before provision (GAAP) $74,816 $69,219 $54,983
Exclude incremental accretion on purchased loans 1,772 1,623 76
Adjusted net interest income before provision (non-GAAP) $73,044 $67,596 $54,907
Average Interest earning assets (GAAP) $7,517,314 $7,087,671 $6,286,309
Net interest margin (GAAP) 3.99 % 3.96 % 3.51 %
Net interest margin, excluding incremental accretion on purchased loans 3.90 % 3.87 % 3.50 %
(non-GAAP)
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SOURCE Heritage Financial Corporation
Bryan McDonald, President and Chief Executive Officer, (360) 943-1500; Don Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500