Heritage Financial Announces Third Quarter 2026 Results and Declares Regular Cash Dividend of $0.25 Per Share
Third Quarter 2026 Highlights
OLYMPIA, Wash., Oct. 22, 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 $18.7 million for the third quarter of 2026, compared to $17.5 million for the second quarter of 2026 and $19.2 million for the third quarter of 2025. Diluted earnings per share were $0.46 for the third quarter of 2026, compared to $0.42 for the second quarter of 2026 and $0.55 for the third quarter of 2025. Adjusted diluted earnings per share (1) were $0.55 for the third quarter of 2026, compared to $0.57 for the second quarter of 2026 and $0.56 for the third quarter of 2025.
During third quarter of 2026, the Company completed the core conversion of customer accounts of Kitsap Bank from the acquisition of its parent company Olympic Bancorp, Inc. (the "Merger") which closed on January 31, 2026. As a result of the core conversion and closure of two branches, the Company recognized Merger-related expenses of $5.2 million in the third quarter of 2026.
Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We are pleased with the continued improvement in our net interest margin and growth in loans and deposits during the third quarter. In addition, we completed the successful conversion of the Kitsap Bank customers to the Heritage Bank system. This was an important step for Heritage to achieve full realization of cost savings from the Merger and operate with improved efficiency going forward."
(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
September 30,
2026
June 30,
2026
September 30,
2025
(Dollars in thousands, except per share amounts)
Net income
$ 18,720
$ 17,546
$ 19,169
Diluted earnings per share
0.46
0.42
0.55
Adjusted diluted earnings per share (1)
0.55
0.57
0.56
Return on average assets (2)
0.88 %
0.83 %
1.09 %
Adjusted return on average assets (1)(2)
1.07 %
1.12 %
1.11 %
Return on average common equity (2)
6.71
6.33
8.52
Return on average tangible common equity (1)(2)
10.67
10.17
11.86
Adjusted return on average tangible common equity (1)(2)
12.75
13.29
12.16
Net interest margin (2)
4.05
3.99
3.64
Cost of total deposits (2)
1.19
1.21
1.37
Efficiency ratio
71.6
76.5
63.3
Adjusted efficiency ratio (1)
62.2
63.9
61.9
Noninterest expense to average total assets (2)
2.90
3.06
2.36
Adjusted noninterest expense to average total assets (1)(2)
2.52
2.56
2.30
Total assets
$ 8,517,934
$ 8,430,566
$ 7,011,879
Loans receivable
5,881,201
5,747,741
4,769,160
Total deposits
7,186,934
7,038,706
5,857,464
Loan to deposit ratio (3)
81.8 %
81.7 %
81.4 %
Book value per share
$ 26.71
$ 27.13
$ 26.62
Tangible book value per share (1)
18.74
19.15
19.46
(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 $31.8 million, or 1.9%, to $1.60 billion at September 30, 2026, from $1.63 billion at June 30, 2026. There were investment maturities and repayments of $45.9 million and a $32.4 million increase in unrealized losses on available for sale securities during the third quarter of 2026. These decreases to carrying value were partially offset by investment security purchases of $46.1 million during the third quarter of 2026.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:
September 30, 2026
June 30, 2026
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Investment securities available for sale, at fair value:
U.S. government and agency securities
$ 11,272
0.7 %
$ 11,823
0.7 %
$ (551)
(4.7) %
Municipal securities
55,203
3.4
64,390
3.9
(9,187)
(14.3)
Residential CMO and MBS (1)
491,405
30.7
496,178
30.4
(4,773)
(1.0)
Commercial CMO and MBS (1)
348,255
21.8
363,713
22.2
(15,458)
(4.3)
Corporate obligations
23,052
1.4
16,423
1.0
6,629
40.4
Other asset-backed securities
18,449
1.2
18,910
1.2
(461)
(2.4)
Total
$ 947,636
59.2 %
$ 971,437
59.4 %
$ (23,801)
(2.5) %
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities
$ 151,385
9.5 %
$ 151,363
9.3 %
$ 22
— %
Residential CMO and MBS (1)
200,760
12.5
207,387
12.7
(6,627)
(3.2)
Commercial CMO and MBS (1)
301,678
18.8
303,089
18.6
(1,411)
(0.5)
Total
$ 653,823
40.8 %
$ 661,839
40.6 %
$ (8,016)
(1.2) %
Total investment securities
$ 1,601,459
100.0 %
$ 1,633,276
100.0 %
$ (31,817)
(1.9) %
(1)
U.S. government agency and government-sponsored enterprise CMO and MBS.
Loans Receivable
Loans receivable increased $133.5 million, or 2.3%, during the third quarter of 2026. New loans funded during the third quarter of 2026 were $255.4 million, an increase from new loans funded during the second quarter of 2026 of $162.2 million and new loans funded during the third quarter of 2025 of $174.5 million. Loan prepayments were higher at $133.7 million during the third quarter of 2026, compared to $102.5 million during the second quarter of 2026. Loan payoffs were also higher at $73.4 million during the third quarter of 2026, compared to $49.9 million in the second quarter of 2026.
Commercial and industrial loans increased $10.4 million, or 1.0%, during the third quarter of 2026, due primarily to new loan production of $40.9 million, offset partially by pay downs on outstanding balances. Owner-occupied commercial real estate ("CRE") loans decreased $15.9 million, or 1.3%, during the third quarter, due primarily to pay downs on outstanding balances, offset partially by new loan production of $36.7 million. Non-owner occupied CRE loans increased $56.5 million, or 2.3%, during the quarter, due primarily to new loan production of $122.8 million. Residential real estate loans increased $12.3 million, or 3.5% due primarily to the purchase of a $21.0 million pool of mortgage loans during the third quarter, offset partially by pay downs on outstanding balances. Commercial and multifamily construction loans increased $62.0 million, or 23.9%, during the third quarter, due primarily to advances on current commitments.
The following table summarizes the Company's loans receivable at the dates indicated:
September 30, 2026
June 30, 2026
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Commercial business:
Commercial and industrial
$ 1,061,712
18.1 %
$ 1,051,269
18.3 %
$ 10,443
1.0 %
Owner-occupied CRE
1,211,776
20.6
1,227,674
21.4
(15,898)
(1.3)
Non-owner occupied CRE
2,565,804
43.6
2,509,283
43.6
56,521
2.3
Total commercial business
4,839,292
82.3
4,788,226
83.3
51,066
1.1
Residential real estate
361,177
6.1
348,838
6.1
12,339
3.5
Real estate construction and land development:
Residential
139,669
2.4
136,595
2.4
3,074
2.3
Commercial and multifamily
321,951
5.5
259,947
4.5
62,004
23.9
Total real estate construction and land
development
461,620
7.9
396,542
6.9
65,078
16.4
Consumer
219,112
3.7
214,135
3.7
4,977
2.3
Loans receivable
$ 5,881,201
100.0 %
$ 5,747,741
100.0 %
$ 133,460
2.3
Deposits
Total deposits increased $148.2 million, or 2.1%, to $7.19 billion at September 30, 2026, from $7.04 billion at June 30, 2026.
Non-maturity deposits increased by $189.6 million, or 3.2%, from June 30, 2026 due primarily to new deposits opened during the third quarter of 2026 as well as an increase in customer balances as is typical in the third quarter of each year. Certificates of deposit declined $41.4 million during the third quarter of 2026 due primarily to the transfer of a $39.3 million relationship to a money market account.
The following table summarizes the Company's total deposits at the dates indicated:
September 30, 2026
June 30, 2026
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Noninterest demand deposits
$ 1,967,073
27.4 %
$ 1,972,702
28.0 %
$ (5,629)
(0.3) %
Interest bearing demand deposits
1,974,016
27.5
1,854,634
26.3
119,382
6.4
Money market accounts
1,667,978
23.2
1,574,835
22.4
93,143
5.9
Savings accounts
563,965
7.8
581,259
8.3
(17,294)
(3.0)
Total non-maturity deposits
6,173,032
85.9
5,983,430
85.0
189,602
3.2
Certificates of deposit
1,013,902
14.1
1,055,276
15.0
(41,374)
(3.9)
Total deposits
$ 7,186,934
100.0 %
$ 7,038,706
100.0 %
$ 148,228
2.1 %
Borrowings
Total borrowings decreased $44.4 million to $121.9 million at September 30, 2026, compared to $166.3 million at June 30, 2026. All outstanding borrowings at September 30, 2026 were with the Federal Home Loan Bank ("FHLB") and mature in the fourth quarter of 2026.
Stockholders' Equity
Total stockholders' equity decreased $25.9 million, or 2.3%, to $1.08 billion at September 30, 2026, compared to $1.11 billion at June 30, 2026. This decrease was due primarily to an increase in other comprehensive loss of $25.3 million due to a change in market rates during the quarter, the repurchase of 341,483 shares of the Company's common stock, for an aggregate purchase price of $10.2 million, under the Company's stock repurchase program, and dividends declared of $10.3 million, offset partially by net income of $18.7 million.
The following table summarizes changes in stockholders' equity for the Company for the period indicated:
Quarter Ended
September 30,
2026
(In thousands)
Balance, beginning of period
$ 1,109,692
Net income
18,720
Cash dividends declared on common stock
(10,341)
Common stock repurchased
(10,302)
Other comprehensive loss
(25,276)
Other
1,328
Balance, end of period
$ 1,083,821
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements to be categorized as "well-capitalized" at September 30, 2026.
The following table summarizes the capital ratios for the Company at the dates indicated:
September 30,
2026
June 30,
2026
Stockholders' equity to total assets
12.7 %
13.2 %
Tangible common equity to tangible assets (1)
9.3
9.7
Common equity tier 1 capital ratio (2)
11.9
12.1
Leverage ratio (2)
10.3
10.4
Tier 1 capital ratio (2)
12.2
12.5
Total capital ratio (2)
13.1
13.4
(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 1.04% at September 30, 2026, compared to 1.03% at June 30, 2026. The increase in the ACL as a percentage of loans was due primarily to specific reserves of $998,000 for individually evaluated loans.
During the third quarter of 2026, the Company recorded a $2.3 million provision for credit losses on loans, compared to an $844,000 reversal of provision during the second quarter of 2026. The provision for credit losses on loans was due primarily to loan growth during the quarter. During the third quarter of 2026, the Company recorded a $20,000 provision for credit losses on unfunded commitments, compared to a $77,000 reversal of provision for credit losses on unfunded commitments during the second 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
September 30, 2026
June 30, 2026
September 30, 2025
ACL on
Loans
ACL on
Unfunded
Total
ACL on
Loans
ACL on
Unfunded
Total
ACL on
Loans
ACL on
Unfunded
Total
(Dollars in thousands)
Balance, beginning of period
$ 59,473
$ 1,108
$ 60,581
$ 60,551
$ 1,185
$ 61,736
$ 52,529
$ 740
$ 53,269
Provision for (reversal of) credit losses
2,251
20
2,271
(844)
(77)
(921)
1,563
212
1,775
(Net charge-offs) / recoveries
(381)
—
(381)
(234)
—
(234)
(118)
—
(118)
Balance, end of period
$ 61,343
$ 1,128
$ 62,471
$ 59,473
$ 1,108
$ 60,581
$ 53,974
$ 952
$ 54,926
Credit Quality
Classified loans (loans rated substandard or worse) increased $3.0 million from the prior quarter, while the percentage of classified loans to loans receivable remained at 1.8% at September 30, 2026 and June 30, 2026.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
September 30, 2026
June 30, 2026
Balance
% of
Total
Balance
% of
Total
(Dollars in thousands)
Risk Rating:
Pass
$ 5,634,705
95.9 %
$ 5,517,189
96.0 %
Special Mention
138,023
2.3
125,108
2.2
Substandard
108,473
1.8
105,444
1.8
Total
$ 5,881,201
100.0 %
$ 5,747,741
100.0 %
Nonaccrual loans were $32.1 million at September 30, 2026, compared to $15.5 million at June 30, 2026. Four commercial and industrial loan relationships totaling $12.9 million and three commercial real estate loan relationships totaling $4.2 million were migrated to nonaccrual during the third quarter of 2026.
The following table illustrates changes in nonaccrual loans during the periods indicated:
Quarter Ended
September 30,
2026
June 30,
2026
September 30,
2025
(Dollars in thousands)
Balance, beginning of period
$ 15,510
$ 14,958
$ 9,865
Additions
17,210
5,988
8,288
Net principal payments
(336)
(280)
(207)
Payoffs
(305)
(5,156)
(137)
Charge-offs
(2)
—
(197)
Balance, end of period
$ 32,077
$ 15,510
$ 17,612
Nonaccrual loans to loans receivable
0.55 %
0.27 %
0.37 %
Liquidity
Total liquidity sources available at September 30, 2026 totaled $3.25 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 September 30, 2026 represented a coverage ratio of 45.2% of total deposits and 114.2% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity as of the dates indicated:
Quarter Ended
September 30,
2026
June 30,
2026
(Dollars in thousands)
On-balance sheet liquidity
Cash and cash equivalents
$ 187,067
$ 204,375
Unencumbered investment securities available for sale (1)
926,203
949,021
Total on-balance sheet liquidity
$ 1,113,270
$ 1,153,396
Off-balance sheet liquidity
FRB borrowing availability
$ 322,158
$ 339,029
FHLB borrowing availability (2)
1,671,170
1,635,593
Fed funds line borrowing availability with correspondent banks
145,000
145,000
Total off-balance sheet liquidity
$ 2,138,328
$ 2,119,622
Total available liquidity
$ 3,251,598
$ 3,273,018
(1)
Investment securities available for sale at fair value.
(2)
Includes FHLB total borrowing availability of $1.79 billion at September 30, 2026 based on pledged assets, however, maximum credit capacity was 45% of the Bank's total assets one quarter in arrears or $3.79 billion.
Net Interest Income and Net Interest Margin
Net interest income increased $2.4 million, or 3.3%, during the third quarter of 2026 compared to the second quarter of 2026 due to a $2.5 million increase in total interest income, offset partially by an increase in interest expense of $74,000. The increase in net interest income was primarily due to an increase in the net interest margin.
Net interest margin increased six basis points to 4.05% during the third quarter of 2026, from 3.99% during the second quarter of 2026. The increase in net interest margin was due primarily to the increase in yield on loans and a decrease in the cost of interest bearing deposits.
The yield on interest earning assets increased five basis points to 5.26% for the third quarter of 2026, compared to 5.21% for the second quarter of 2026. The increase was primarily due to an increase in yield on loans.
The yield on loans receivable increased four basis points to 5.76% during the third quarter of 2026, compared to 5.72% during the second quarter of 2026. The increase was due primarily to an increase in rates on loans originated during the third quarter of 2026. Loan yield also benefited from the incremental accretion on purchased loans in both the second and third quarters 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
September 30,
2026
June 30,
2026
September 30,
2025
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
Net interest margin
4.05 %
3.99 %
3.64 %
Exclude impact from incremental accretion on purchased loans (2)
(0.07) %
(0.09) %
(0.01) %
Net interest margin, excluding incremental accretion on purchased
loans (1)
3.98 %
3.90 %
3.63 %
Loan yield, excluding incremental accretion on purchased loans, annualized:
Loan yield
5.76 %
5.72 %
5.53 %
Exclude impact from incremental accretion on purchased loans (2)
(0.10)
(0.12)
(0.01)
Loan yield, excluding incremental accretion on purchased loans (1)
5.66 %
5.60 %
5.52 %
Incremental accretion on purchased loans (1)
$ 1,456
$ 1,772
$ 123
(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 two basis points to 1.65% for the third quarter of 2026, from 1.67% for the second quarter of 2026. This decrease was primarily due to a decrease in rates on certificates of deposit.
Net interest margin increased 41 basis points to 4.05% during the third quarter of 2026, compared to 3.64% for the same period in the prior year. Net interest income increased $19.9 million, or 34.7%, during the third 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
September 30, 2026
June 30, 2026
September 30, 2025
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate (1)
(Dollars in thousands)
Interest Earning Assets:
Loans receivable (2)(3)
$ 5,817,905
$ 84,470
5.76 %
$ 5,740,927
$ 81,935
5.72 %
$ 4,762,648
$ 66,422
5.53 %
Taxable securities
1,609,163
14,456
3.56
1,635,979
14,464
3.55
1,314,374
11,102
3.35
Nontaxable securities (3)
15,049
126
3.32
15,439
128
3.33
15,242
138
3.59
Interest earning deposits
121,352
1,139
3.72
124,969
1,147
3.68
166,182
1,846
4.41
Total interest earning assets
7,563,469
100,191
5.26 %
7,517,314
97,674
5.21 %
6,258,446
79,508
5.04 %
Noninterest earning assets
917,141
920,006
747,694
Total assets
$ 8,480,610
$ 8,437,320
$ 7,006,140
Interest Bearing Liabilities:
Certificates of deposit
$ 1,033,482
$ 8,157
3.13 %
$ 1,090,406
$ 8,817
3.24 %
$ 955,737
$ 8,822
3.66 %
Savings accounts
575,102
296
0.20
591,458
348
0.24
428,256
296
0.27
Interest bearing demand and money market accounts
3,528,494
12,916
1.45
3,444,901
12,226
1.42
2,833,048
11,003
1.54
Total interest bearing deposits
5,137,078
21,369
1.65
5,126,765
21,391
1.67
4,217,041
20,121
1.89
Junior subordinated debentures
22,527
437
7.70
22,455
431
7.70
22,239
474
8.46
Borrowings
110,936
1,126
4.03
105,131
1,036
3.95
136,582
1,542
4.48
Total interest bearing liabilities
5,270,541
22,932
1.73 %
5,254,351
22,858
1.74 %
4,375,862
22,137
2.01 %
Noninterest demand deposits
2,000,526
1,973,038
1,625,945
Other noninterest bearing liabilities
102,381
97,753
112,053
Stockholders' equity
1,107,162
1,112,178
892,280
Total liabilities and stockholders' equity
$ 8,480,610
$ 8,437,320
$ 7,006,140
Net interest income and spread
$ 77,259
3.53 %
$ 74,816
3.47 %
$ 57,371
3.03 %
Net interest margin
4.05 %
3.99 %
3.64 %
(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 $1.4 million, $1.1 million and $1.0 million for the third quarter of 2026, second quarter of 2026 and third quarter of 2025, respectively, and the incremental accretion on purchased loans of $1.5 million, $1.8 million, and $123,000 for the third quarter of 2026, second quarter of 2026 and third 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 decreased $58,000 to $9.3 million during the third quarter of 2026. The decrease was due primarily to a decrease in bank owned life insurance ("BOLI") income.
Noninterest income increased $928,000 during the third quarter of 2026 from the same period in 2025 due primarily 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
Quarter Change
Prior Year
Quarter Change
September
30,
2026
June 30,
2026
September
30,
2025
$
%
$
%
(Dollars in thousands)
Service charges and other fees
$ 3,497
$ 3,592
$ 3,046
$ (95)
(2.6) %
$ 451
14.8 %
Card revenue
2,521
2,595
2,209
(74)
(2.9)
312
14.1
Loss on sale of investment securities
—
(217)
—
217
(100.0)
—
—
Interest rate swap fees
53
3
96
50
1666.7
(43)
(44.8)
BOLI income
1,250
1,485
1,008
(235)
(15.8)
242
24.0
Other income
1,932
1,853
1,966
79
4.3
(34)
(1.7)
Total noninterest income (loss)
$ 9,253
$ 9,311
$ 8,325
$ (58)
(0.6) %
$ 928
11.1 %
Noninterest Expense
Noninterest expense decreased $2.4 million, or 3.7%, to $62.0 million during the third quarter of 2026, compared to $64.3 million in the second quarter of 2026. The decrease was primarily due to a decrease in Merger-related expenses.
Merger-related expenses consisted of severance expense, professional fees, core conversion costs, exit costs related to the consolidation of two branches, closure of one loan production office and one administration location, and contract termination costs. Merger-related expenses incurred in the third quarter of 2026 were $5.2 million compared to $7.5 million in the second quarter of 2026.
The following table presents Merger-related expenses included in noninterest expense and the change for the periods indicated:
Quarter Ended
Change
September 30,
2026
June 30,
2026
$
(Dollars in thousands)
Compensation and employee benefits
$ 669
$ 1,481
$ (812)
Occupancy and equipment
152
—
152
Data processing
2,524
4,924
(2,400)
Marketing
126
—
126
Professional services
294
128
166
Other expense
1,420
960
460
Total noninterest expense
$ 5,185
$ 7,493
$ (2,308)
Noninterest expense increased $20.3 million, or 48.9%, during the third 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's operations.
The following table presents the key components of noninterest expense and the change for the periods indicated:
Quarter Ended
Quarter Over
Quarter Change
Prior Year
Quarter Change
September 30,
2026
June 30,
2026
September 30,
2025
$
%
$
%
(Dollars in thousands)
Compensation and employee benefits
$ 34,135
$ 35,769
$ 26,082
$ (1,634)
(4.6) %
$ 8,053
30.9 %
Occupancy and equipment
6,326
6,014
4,665
312
5.2
1,661
35.6
Data processing
8,337
10,218
3,754
(1,881)
(18.4)
4,583
122.1
Marketing
675
437
284
238
54.5
391
137.7
Professional services
1,109
939
1,332
170
18.1
(223)
(16.7)
State/municipal business and use taxes
1,799
1,801
1,235
(2)
(0.1)
564
45.7
Federal deposit insurance premium
947
881
796
66
7.5
151
19.0
Other real estate owned, net
(55)
44
—
(99)
(225.0)
(55)
—
Amortization of intangible assets
2,941
2,957
284
(16)
(0.5)
2,657
935.6
Other expense
5,744
5,264
3,183
480
9.1
2,561
80.5
Total noninterest expense
$ 61,958
$ 64,324
$ 41,615
$ (2,366)
(3.7) %
$ 20,343
48.9 %
Income Tax Expense
Income tax expense increased $385,000 in the third quarter of 2026, compared to the second quarter of 2026 due to higher pre-tax income during the third quarter of 2026.
Income tax expense increased $426,000 in the third quarter of 2026, compared to the same period in 2025, due primarily to an increase in the effective income tax rate during the third quarter of 2026.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended
Change
September 30,
2026
June 30,
2026
September 30,
2025
Quarter Over
Quarter
Prior Year
Quarter
(Dollars in thousands)
Income before income taxes
$ 22,283
$ 20,724
$ 22,306
$ 1,559
$ (23)
Income tax expense
$ 3,563
$ 3,178
$ 3,137
$ 385
$ 426
Effective income tax rate
16.0 %
15.3 %
14.1 %
0.7 %
1.9 %
Dividends
On October 21, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend is payable on November 18, 2026 to shareholders of record as of the close of business on November 4, 2026.
Stock Repurchase Program
On October 21, 2026, the Company's Board of Directors approved a new stock repurchase program, authorizing the repurchase of up to 5% of the Company's outstanding common shares or approximately 2.0 million shares. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital.
The new stock repurchase program supersedes a prior stock repurchase program, which was authorized in April 2024 and allowed for the buyback of approximately 1.7 million shares. The repurchase allowance under the prior stock repurchase program was substantially completed during the third quarter of 2026.
Earnings Conference Call
The Company will hold a telephone conference call to discuss third quarter of 2026 earnings on Thursday, October 22, 2026 at 9:00 a.m. Pacific time. Participants may register for the call at the following link: https://events.q4inc.com/analyst/562330083?pwd=MlXLXIj8. The call can also be accessed by dialing (833) 461-5787 -- Meeting ID: 562 330 083, a few minutes prior to 9:00 a.m. Pacific time. The conference call will be recorded and will be available for replay through November 5, 2026 by dialing (833) 309-1852 or by visiting the Company website https://www.hf-wa.com/.
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 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.
Contact
Bryan McDonald, President and Chief Executive Officer, (360) 943-1500
Don Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500
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 of the U.S. Private Securities Litigation Reform Act of 1995. Such statements often include, among others, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by 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 inherent 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, including as a result of the recent increase in the benchmark federal funds rate by the Federal Reserve, 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, financial technology companies, and digital asset service providers; 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 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 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 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 and evolving 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)
September 30,
2026
June 30,
2026
December 31,
2025
Assets
Cash on hand and in banks
$ 103,026
$ 102,555
$ 52,587
Interest earning deposits
84,041
101,820
180,502
Cash and cash equivalents
187,067
204,375
233,089
Investment securities available for sale, at fair value (amortized cost of
$1,028,761, $1,020,125 and $647,505, respectively)
947,636
971,437
607,522
Investment securities held to maturity, at amortized cost (fair value of
$577,974, $607,782 and $625,287, respectively)
653,823
661,839
674,107
Total investment securities
1,601,459
1,633,276
1,281,629
Loans receivable
5,881,201
5,747,741
4,783,266
Allowance for credit losses on loans
(61,343)
(59,473)
(52,584)
Loans receivable, net
5,819,858
5,688,268
4,730,682
Other real estate owned
—
755
—
Premises and equipment, net
98,295
98,034
74,690
Federal Home Loan Bank stock, at cost
10,657
12,653
5,163
BOLI
147,600
146,350
105,974
Accrued interest receivable
24,290
23,056
19,280
Prepaid expenses and other assets
305,351
297,501
273,925
Other intangible assets, net
44,328
47,269
1,979
Goodwill
279,029
279,029
240,939
Total assets
$ 8,517,934
$ 8,430,566
$ 6,967,350
Liabilities and Stockholders' Equity
Non-interest bearing deposits
$ 1,967,073
$ 1,972,702
$ 1,597,650
Interest bearing deposits
5,219,861
5,066,004
4,322,549
Total deposits
7,186,934
7,038,706
5,920,199
Borrowings
121,900
166,250
20,000
Junior subordinated debentures
22,570
22,497
22,350
Accrued expenses and other liabilities
102,709
93,421
83,297
Total liabilities
7,434,113
7,320,874
6,045,846
Common stock
698,915
707,889
531,100
Retained earnings
448,178
439,799
421,619
Accumulated other comprehensive loss, net
(63,272)
(37,996)
(31,215)
Total stockholders' equity
1,083,821
1,109,692
921,504
Total liabilities and stockholders' equity
$ 8,517,934
$ 8,430,566
$ 6,967,350
Shares outstanding
40,576,875
40,906,122
33,963,500
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
Nine Months Ended
September 30,
2026
June 30,
2026
September 30,
2025
September 30,
2026
September 30,
2025
Interest Income
Interest and fees on loans
$ 84,470
$ 81,935
$ 66,422
$ 242,850
$ 196,231
Taxable interest on investment securities
14,456
14,464
11,102
41,490
34,420
Nontaxable interest on investment securities
126
128
138
383
414
Interest on interest earning deposits
1,139
1,147
1,846
3,817
4,309
Total interest income
100,191
97,674
79,508
288,540
235,374
Interest Expense
Deposits
21,369
21,391
20,121
63,507
59,760
Junior subordinated debentures
437
431
474
1,298
1,417
Borrowings
1,126
1,036
1,542
2,441
8,153
Total interest expense
22,932
22,858
22,137
67,246
69,330
Net interest income
77,259
74,816
57,371
221,294
166,044
Provision for (reversal of) credit losses
2,271
(921)
1,775
320
2,782
Net interest income after provision for
(reversal of) credit losses
74,988
75,737
55,596
220,974
163,262
Noninterest Income
Service charges and other fees
3,497
3,592
3,046
10,456
8,953
Card revenue
2,521
2,595
2,209
7,219
5,950
Loss on sale of investment securities, net
—
(217)
—
(217)
(10,741)
Interest rate swap fees
53
3
96
56
115
BOLI income
1,250
1,485
1,008
3,854
3,206
Gain on sale of other assets, net
—
—
—
—
8
Other income
1,932
1,853
1,966
5,895
6,254
Total noninterest income (loss)
9,253
9,311
8,325
27,263
13,745
Noninterest Expense
Compensation and employee benefits
34,135
35,769
26,082
103,876
77,348
Occupancy and equipment
6,326
6,014
4,665
17,670
14,431
Data processing
8,337
10,218
3,754
23,648
11,317
Marketing
675
437
284
1,495
955
Professional services
1,109
939
1,332
4,890
3,188
State/municipal business and use taxes
1,799
1,801
1,235
5,274
3,660
Federal deposit insurance premium
947
881
796
2,865
2,418
Other real estate owned, net
(55)
44
—
(7)
—
Amortization of intangible assets
2,941
2,957
284
7,956
889
Other expense
5,744
5,264
3,183
15,166
9,877
Total noninterest expense
61,958
64,324
41,615
182,833
124,083
Income before income taxes
22,283
20,724
22,306
65,404
52,924
Income tax expense
3,563
3,178
3,137
10,191
7,629
Net income
$ 18,720
$ 17,546
$ 19,169
$ 55,213
$ 45,295
Basic earnings per share
$ 0.46
$ 0.42
$ 0.56
$ 1.37
$ 1.33
Diluted earnings per share
$ 0.46
$ 0.42
$ 0.55
$ 1.36
$ 1.31
Dividends declared per share
$ 0.25
$ 0.24
$ 0.24
$ 0.73
$ 0.72
Average shares outstanding - basic
40,740,742
41,079,781
33,953,810
40,175,502
34,009,010
Average shares outstanding - diluted
41,213,105
41,541,763
34,413,386
40,642,491
34,481,877
HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Average Balances, Yields, and Rates Paid:
Nine Months Ended September 30,
2026
2025
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate (1)
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate (1)
Interest Earning Assets:
Loans receivable (2)(3)
$ 5,658,741
$ 242,850
5.74 %
$ 4,774,926
$ 196,231
5.49 %
Taxable securities
1,577,611
41,490
3.52
1,371,957
34,420
3.35
Nontaxable securities (3)
15,381
383
3.33
15,406
414
3.59
Interest earning deposits
139,494
3,817
3.66
130,253
4,309
4.42
Total interest earning assets
7,391,227
288,540
5.22 %
6,292,542
235,374
5.00 %
Noninterest earning assets
895,082
759,206
Total assets
$ 8,286,309
$ 7,051,748
Interest Bearing Liabilities:
Certificates of deposit
$ 1,062,740
$ 25,788
3.24 %
$ 971,933
$ 27,841
3.83 %
Savings accounts
569,115
959
0.23
426,767
877
0.27
Interest bearing demand and money market accounts
3,426,293
36,760
1.43
2,770,162
31,042
1.50
Total interest bearing deposits
5,058,148
63,507
1.68
4,168,862
59,760
1.92
Junior subordinated debentures
22,455
1,298
7.73
22,164
1,417
8.55
Borrowings
81,367
2,441
4.01
233,504
8,153
4.67
Total interest bearing liabilities
5,161,970
67,246
1.74 %
4,424,530
69,330
2.10 %
Noninterest demand deposits
1,936,229
1,620,047
Other noninterest bearing liabilities
98,436
127,505
Stockholders' equity
1,089,674
879,666
Total liabilities and stockholders' equity
$ 8,286,309
$ 7,051,748
Net interest income and spread
$ 221,294
3.48 %
$ 166,044
2.90 %
Net interest margin
4.00 %
3.53 %
(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 $3.2 million and $2.7 million for the nine months ended September 30, 2026 and 2025, respectively, and incremental accretion on purchased loans of $4.9 million and $352,000, for the nine months ended September 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
Nine Months Ended
September 30,
2026
June 30,
2026
September 30,
2025
September 30,
2026
September 30,
2025
Allowance for Credit Losses on Loans:
Balance, beginning of period
$ 59,473
$ 60,551
$ 52,529
$ 52,584
$ 52,468
Initial ACL recorded for PSL and PCD
loans acquired during the period
—
—
—
9,339
—
(Reversal of) provision for credit
losses on loans
2,251
(844)
1,563
587
2,417
Charge-offs:
Commercial business
(186)
(180)
(195)
(766)
(871)
Residential real estate
—
—
(27)
(64)
(27)
Consumer
(219)
(89)
(152)
(427)
(410)
Total charge-offs
(405)
(269)
(374)
(1,257)
(1,308)
Recoveries:
Commercial business
3
4
219
11
263
Residential real estate
—
2
1
2
1
Consumer
21
29
36
77
133
Total recoveries
24
35
256
90
397
Net (charge-offs) recoveries
(381)
(234)
(118)
(1,167)
(911)
Balance, end of period
$ 61,343
$ 59,473
$ 53,974
$ 61,343
$ 53,974
Net charge-offs on loans to average
loans receivable annualized
0.03 %
0.02 %
0.01 %
0.03 %
0.03 %
September 30,
2026
June 30,
2026
December 31,
2025
Nonperforming Assets:
Nonaccrual loans:
Commercial business
$ 24,125
$ 7,437
$ 6,886
Residential real estate
1,321
1,338
1,196
Real estate construction and land development
6,321
6,420
12,408
Consumer
310
315
486
Total nonaccrual loans
32,077
15,510
20,976
Accruing loans past due 90 days or more
948
—
194
Total nonperforming loans
33,025
15,510
21,170
Other real estate owned
—
755
—
Nonperforming assets
$ 33,025
$ 16,265
$ 21,170
ACL on loans to:
Loans receivable
1.04 %
1.03 %
1.10 %
Nonaccrual loans
191.24 %
383.45 %
250.69 %
Nonaccrual loans to loans receivable
0.55 %
0.27 %
0.44 %
Nonperforming loans to loans receivable
0.56 %
0.27 %
0.44 %
Nonperforming assets to total assets
0.39 %
0.19 %
0.30 %
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Earnings:
Net interest income
$ 77,259
$ 74,816
$ 69,219
$ 58,361
$ 57,371
Provision for (reversal of) credit losses
2,271
(921)
(1,030)
(814)
1,775
Noninterest income
9,253
9,311
8,699
7,987
8,325
Noninterest expense
61,958
64,324
56,551
41,483
41,615
Net income
18,720
17,546
18,947
22,237
19,169
Basic earnings per share
$ 0.46
$ 0.42
$ 0.49
$ 0.66
$ 0.56
Diluted earnings per share
$ 0.46
$ 0.42
$ 0.48
$ 0.65
$ 0.55
Adjusted diluted earnings per share (1)
$ 0.55
$ 0.57
$ 0.59
$ 0.66
$ 0.56
Average Balances:
Loans receivable
$ 5,817,905
$ 5,740,927
$ 5,412,943
$ 4,770,300
$ 4,762,648
Total investment securities
1,624,212
1,651,418
1,502,005
1,301,526
1,329,616
Total interest earning assets
7,563,469
7,517,314
7,087,671
6,223,303
6,258,446
Total assets
8,480,610
8,437,320
7,935,002
6,954,110
7,006,140
Total interest bearing deposits
5,137,078
5,126,765
4,908,086
4,250,589
4,217,041
Total noninterest demand deposits
2,000,526
1,973,038
1,833,284
1,635,539
1,625,945
Stockholders' equity
1,107,162
1,112,178
1,049,044
911,454
892,280
Financial Ratios:
Return on average assets (2)
0.88 %
0.83 %
0.97 %
1.27 %
1.09 %
Adjusted return on average assets (1)(2)
1.07 %
1.12 %
1.18 %
1.29 %
1.11 %
Return on average common equity (2)
6.71
6.33
7.32
9.68
8.52
Return on average tangible common
equity (1)(2)
10.67
10.17
11.14
13.33
11.86
Adjusted return on average tangible
common equity (1)(2)
12.75
13.29
13.36
13.51
12.16
Efficiency ratio
71.6
76.5
72.6
62.5
63.3
Adjusted efficiency ratio (1)
62.2
63.9
63.3
61.5
61.9
Noninterest expense to average total
assets (2)
2.90
3.06
2.89
2.37
2.36
Adjusted noninterest expense to
average total assets (1)(2)
2.52
2.56
2.52
2.33
2.30
Net interest spread (2)
3.53
3.47
3.43
3.15
3.03
Net interest margin (2)
4.05
3.99
3.96
3.72
3.64
(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
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Select Balance Sheet:
Total assets
$ 8,517,934
$ 8,430,566
$ 8,498,404
$ 6,967,350
$ 7,011,879
Loans receivable
5,881,201
5,747,741
5,722,238
4,783,266
4,769,160
Total investment securities
1,601,459
1,633,276
1,669,411
1,281,629
1,312,857
Total deposits
7,186,934
7,038,706
7,248,537
5,920,199
5,857,464
Noninterest demand deposits
1,967,073
1,972,702
2,066,383
1,597,650
1,617,909
Stockholders' equity
1,083,821
1,109,692
1,115,691
921,504
904,064
Financial Measures:
Book value per share
$ 26.71
$ 27.13
$ 27.05
$ 27.13
$ 26.62
Tangible book value per share (1)
18.74
19.15
19.07
19.98
19.46
Stockholders' equity to total assets
12.7 %
13.2 %
13.1 %
13.2 %
12.9 %
Tangible common equity to tangible
assets (1)
9.3
9.7
9.6
10.1
9.8
Loans to deposits ratio
81.8
81.7
78.9
80.8
81.4
Regulatory Capital Ratios: (2)
Common equity tier 1 capital ratio
11.9 %
12.1 %
12.2 %
12.7 %
12.4 %
Leverage ratio
10.3
10.4
10.3
10.8
10.5
Tier 1 capital ratio
12.2
12.5
12.5
13.1
12.8
Total capital ratio
13.1
13.4
13.5
14.1
13.8
Credit Quality Metrics:
ACL on loans to:
Loans receivable
1.04 %
1.03 %
1.06 %
1.10 %
1.13 %
Nonaccrual loans
191.2
383.4
404.8
250.7
306.5
Nonaccrual loans to loans receivable
0.55
0.27
0.26
0.44
0.37
Nonperforming loans to loans receivable
0.56
0.27
0.26
0.44
0.44
Nonperforming assets to total assets
0.39
0.19
0.19
0.30
0.30
Net charge-offs on loans to average loans
receivable (3)
0.03
0.02
0.04
0.04
0.01
Criticized Loans by Credit Quality Rating:
Special mention
$ 138,023
$ 125,108
$ 103,699
$ 71,122
$ 100,160
Substandard
108,473
105,444
121,331
116,823
94,377
Other Metrics:
Number of branches
64
66
65
50
50
Deposits per branch
$ 112,296
$ 106,647
$ 111,516
$ 118,404
$ 117,149
Average number of full-time equivalent
employees
978
976
905
742
749
Average assets per full-time
equivalent employee
8,671
8,645
8,768
9,372
9,354
(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.
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Diluted Earnings per Share and Adjusted Diluted Earnings per Share:
Net income (GAAP)
$ 18,720
$ 17,546
$ 18,947
$ 22,237
$ 19,169
Exclude loss on sale of
investment securities, net
—
217
—
—
—
Exclude merger-related costs
5,185
7,493
5,178
385
635
Exclude tax effect of adjustment
(1,089)
(1,619)
(1,087)
(81)
(133)
Adjusted net income (non-GAAP)
$ 22,816
$ 23,637
$ 23,038
$ 22,541
$ 19,671
Average number of diluted shares
outstanding
41,213,105
41,541,763
39,104,569
34,405,793
34,413,386
Diluted earnings per share (GAAP)
$ 0.46
$ 0.42
$ 0.48
$ 0.65
$ 0.55
Adjusted diluted earnings per share
(non-GAAP)
$ 0.55
$ 0.57
$ 0.59
$ 0.66
$ 0.56
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.
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Adjusted Return on Average Assets ("ROAA"):
Net income (GAAP)
$ 18,720
$ 17,546
$ 18,947
$ 22,237
$ 19,169
Exclude (gain) loss on sale of
investment securities, net
—
217
—
—
—
Exclude merger-related costs
5,185
7,493
5,178
385
635
Exclude tax effect of adjustments
(1,089)
(1,619)
(1,087)
(81)
(133)
Adjusted net income (non-GAAP)
$ 22,816
$ 23,637
$ 23,038
$ 22,541
$ 19,671
Average ("Avg") total assets
$ 8,480,610
$ 8,437,320
$ 7,935,002
$ 6,954,110
$ 7,006,140
ROAA, annualized (GAAP)
0.88 %
0.83 %
0.97 %
1.27 %
1.09 %
Adjusted ROAA, annualized
(non-GAAP)
1.07 %
1.12 %
1.18 %
1.29 %
1.11 %
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.
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)
$ 1,083,821
$ 1,109,692
$ 1,115,691
$ 921,504
$ 904,064
Exclude intangible assets
(323,357)
(326,298)
(329,255)
(242,918)
(243,203)
Tangible common equity (non-GAAP)
$ 760,464
$ 783,394
$ 786,436
$ 678,586
$ 660,861
Total assets (GAAP)
$ 8,517,934
$ 8,430,566
$ 8,498,404
$ 6,967,350
$ 7,011,879
Exclude intangible assets
(323,357)
(326,298)
(329,255)
(242,918)
(243,203)
Tangible assets (non-GAAP)
$ 8,194,577
$ 8,104,268
$ 8,169,149
$ 6,724,432
$ 6,768,676
Stockholders' equity to total assets
(GAAP)
12.7 %
13.2 %
13.1 %
13.2 %
12.9 %
Tangible common equity to tangible
assets (non-GAAP)
9.3 %
9.7 %
9.6 %
10.1 %
9.8 %
Shares outstanding
40,576,875
40,906,122
41,249,873
33,963,500
33,956,738
Book value per share (GAAP)
$ 26.71
$ 27.13
$ 27.05
$ 27.13
$ 26.62
Tangible book value per share
(non-GAAP)
$ 18.74
$ 19.15
$ 19.07
$ 19.98
$ 19.46
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
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)
$ 18,720
$ 17,546
$ 18,947
$ 22,237
$ 19,169
Add amortization of intangible
assets
2,941
2,957
2,058
285
284
Exclude tax effect of adjustment
(618)
(621)
(432)
(60)
(60)
Tangible net income (non-GAAP)
$ 21,043
$ 19,882
$ 20,573
$ 22,462
$ 19,393
Tangible net income (non-GAAP)
$ 21,043
$ 19,882
$ 20,573
$ 22,462
$ 19,393
Exclude loss on sale of
investment securities, net
—
217
—
—
—
Exclude merger-related costs
5,185
7,493
5,178
385
635
Exclude tax effect of adjustment
(1,089)
(1,619)
(1,087)
(81)
(133)
Adjusted tangible net income
(non-GAAP)
$ 25,139
$ 25,973
$ 24,664
$ 22,766
$ 19,895
Average stockholders' equity (GAAP)
$ 1,107,162
$ 1,112,178
$ 1,049,044
$ 911,454
$ 892,280
Exclude average intangible assets
(325,085)
(328,166)
(300,391)
(243,069)
(243,350)
Average tangible common
stockholders' equity (non-GAAP)
$ 782,077
$ 784,012
$ 748,653
$ 668,385
$ 648,930
Return on average common equity,
annualized (GAAP)
6.71 %
6.33 %
7.32 %
9.68 %
8.52 %
Return on average tangible common
equity, annualized (non-GAAP)
10.67 %
10.17 %
11.14 %
13.33 %
11.86 %
Adjusted return on average tangible
common equity, annualized
(non-GAAP)
12.75 %
13.29 %
13.36 %
13.51 %
12.16 %
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
September 30,
2026
June 30,
2026
March 31,
2026
December 31,
2025
September 30,
2025
Adjusted Efficiency Ratio and Adjusted Noninterest Expense to Average Assets Ratio:
Total noninterest expense (GAAP)
$ 61,958
$ 64,324
$ 56,551
$ 41,483
$ 41,615
Exclude merger-related costs
5,185
7,493
5,178
385
635
Exclude amortization of intangible
assets
2,941
2,957
2,058
285
284
Adjusted noninterest expense
(non-GAAP)
$ 53,832
$ 53,874
$ 49,315
$ 40,813
$ 40,696
Net interest income (GAAP)
$ 77,259
$ 74,816
$ 69,219
$ 58,361
$ 57,371
Total noninterest income (GAAP)
$ 9,253
$ 9,311
$ 8,699
$ 7,987
$ 8,325
Exclude loss on sale of
investment securities, net
—
217
—
—
—
Adjusted total noninterest income
(non-GAAP)
$ 9,253
$ 9,528
$ 8,699
$ 7,987
$ 8,325
Efficiency ratio (GAAP)
71.6 %
76.5 %
72.6 %
62.5 %
63.3 %
Adjusted efficiency ratio (non-GAAP)
62.2 %
63.9 %
63.3 %
61.5 %
61.9 %
Average Total assets
$ 8,480,610
$ 8,437,320
$ 7,935,002
$ 6,954,110
$ 7,006,140
Noninterest expense to average
assets (GAAP) (1)
2.90 %
3.06 %
2.89 %
2.37 %
2.36 %
Adjusted noninterest expense to
average assets (non-GAAP) (1)
2.52 %
2.56 %
2.52 %
2.33 %
2.30 %
(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
September 30,
2026
June 30,
2026
September 30,
2025
(Dollar amounts in thousands)
Loan yield, excluding incremental accretion on purchased loans, annualized:
Interest and fees on loans (GAAP)
$ 84,470
$ 81,935
$ 66,422
Exclude incremental accretion on purchased loans
1,456
1,772
123
Adjusted interest and fees on loans (non-GAAP)
$ 83,014
$ 80,163
$ 66,299
Average loans receivable, net (GAAP)
$ 5,817,905
$ 5,740,927
$ 4,762,648
Loan yield, annualized (GAAP)
5.76 %
5.72 %
5.53 %
Loan yield, excluding incremental accretion on purchased loans,
annualized (non-GAAP)
5.66 %
5.60 %
5.52 %
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
Net interest income before provision (GAAP)
$ 77,259
$ 74,816
$ 57,371
Exclude incremental accretion on purchased loans
1,456
1,772
123
Adjusted net interest income before provision (non-GAAP)
$ 75,803
$ 73,044
$ 57,248
Average Interest earning assets (GAAP)
$ 7,563,469
$ 7,517,314
$ 6,258,446
Net interest margin (GAAP)
4.05 %
3.99 %
3.64 %
Net interest margin, excluding incremental accretion on purchased loans
(non-GAAP)
3.98 %
3.90 %
3.63 %
SOURCE Heritage Financial Corporation