Heritage Financial Announces First Quarter 2026 Results and Declares Regular Cash Dividend of $0.24 Per Share
First Quarter 2026 Highlights
OLYMPIA, Wash., April 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 $18.9 million for the first quarter of 2026, compared to $22.2 million for the fourth quarter of 2025 and $13.9 million for the first quarter of 2025. Diluted earnings per share were $0.48 for the first quarter of 2026, compared to $0.65 for the fourth quarter of 2025 and $0.40 for the first quarter of 2025. Adjusted diluted earnings per share (1) were $0.59 for the first quarter of 2026, compared to $0.66 for the fourth quarter of 2025 and $0.49 for the first quarter of 2025.
Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We successfully closed our strategic acquisition of Olympic Bancorp during the first quarter. This acquisition provides us with a stronger market position in the Puget Sound region, and has contributed to our improved profitability and net interest margin in the quarter. We are on track to complete the system conversion by the end of the third quarter 2026 at which time we will begin to recognize further cost savings, which aligns with our original timeline."
"We are pleased with our operating results for the first quarter and remain focused on maintaining our strong banking organization with sustainable growth and prudent risk management which allows us to generate strong capital returns for our shareholders."
(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
March 31,
2026
December 31,
2025
March 31,
2025
(Dollars in thousands, except per share amounts)
Net income
$ 18,947
$ 22,237
$ 13,911
Diluted earnings per share
0.48
0.65
0.40
Adjusted diluted earnings per share (1)
0.59
0.66
0.49
Return on average assets (2)
0.97 %
1.27 %
0.79 %
Return on average common equity (2)
7.32
9.68
6.51
Return on average tangible common equity (1)(2)
11.14
13.33
9.22
Adjusted return on average tangible common equity (1)(2)
13.36
13.51
11.21
Net interest margin (2)
3.96
3.72
3.44
Cost of total deposits (2)
1.25
1.32
1.38
Efficiency ratio
72.6
62.5
71.9
Adjusted efficiency ratio (1)
63.3
61.5
66.8
Noninterest expense to average total assets (2)
2.89
2.37
2.36
Adjusted noninterest expense to average total assets (1)(2)
2.52
2.33
2.35
Total assets
$ 8,498,404
$ 6,967,350
$ 7,129,862
Loans receivable
5,722,238
4,783,266
4,764,848
Total deposits
7,248,537
5,920,199
5,845,335
Loan to deposit ratio (3)
78.9 %
80.8 %
81.5 %
Book value per share
$ 27.05
$ 27.13
$ 25.85
Tangible book value per share (1)
19.07
19.98
18.70
(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.
Acquisition of Olympic Bancorp, Inc. (the "Merger")
On January 31, 2026, the Company completed the acquisition of Olympic, the holding company for Kitsap Bank. As of the acquisition date, Olympic was merged with and into Heritage and Kitsap Bank was merged with and into Heritage Bank.
Pursuant to the Agreement and Plan of Merger, each issued and outstanding share of Olympic capital stock was exchanged for 45.0 shares of Heritage common stock, with cash paid in lieu of fractional shares. After the Merger was completed, based on the number of issued and outstanding shares of Olympic capital stock on January 30, 2026 (the trading day immediately preceding the completion of the Merger), 7,167,600 shares of Heritage common stock were issued as Merger consideration. Based on the closing price of Heritage common stock on Nasdaq as of January 30, 2026 of $25.81, the Merger consideration that an Olympic shareholder was entitled to receive for each share of Olympic capital stock owned had a value of $1,161.45 with an aggregate transaction value of approximately $185.0 million.
Acquisition Accounting
The Merger was accounted for using the acquisition method. Accordingly, Heritage's cost to acquire Olympic was allocated to the assets (including identifiable intangible assets) and the liabilities at their respective estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill.
Heritage adopted Financial Accounting Standards Board Accounting Standards Update 2025-08 as of January 1, 2026. Under the updated guidance, the acquired financial assets were classified as either Purchased Credit Deteriorated ("PCD"), loans that have experienced more than insignificant credit deterioration since origination, or Purchased Seasoned Loans ("PSLs"). Per ASC 326-20-30-16, all loans that are acquired as part of a business combination accounted for using the acquisition method in accordance with Subtopic 805-20 that do not meet the definition of a PCD loan are determined to be PSLs. Under both classifications, the gross-up approach is applied whereby the estimated allowance for credit loss as of the acquisition date is added back to the fair value to determine the gross amortized cost basis.
Fair values on the acquisition date are preliminary and represent management's best estimates based on available information and facts and circumstances in existence on the acquisition date. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.
The following table provides the estimated fair value of the assets acquired and liabilities assumed at the Merger date of January 31, 2026:
(dollars in thousands)
Total Merger consideration
$ 184,996
Assets
Cash and cash equivalents
155,167
Investment securities
311,979
Loans receivable
954,300
Allowance for credit losses on loans
(9,339)
Loans receivable, net
944,961
Premises and equipment, net
27,437
Federal Home Loan Bank stock, at cost
999
Bank owned life insurance
37,734
Accrued interest receivable
4,253
Prepaid expenses and other assets
19,634
Other intangible assets, net
50,305
Total assets
1,552,469
Liabilities
Deposits
1,388,996
Accrued expenses and other liabilities
16,567
Total liabilities
1,405,563
Fair value of net assets acquired
146,906
Goodwill acquired
38,090
Total Assets
The Company's total assets increased $1.53 billion, or 22.0%, to $8.50 billion at March 31, 2026 from $6.97 billion at December 31, 2025 primarily as a result of the Merger. Assets acquired, including goodwill, from the Merger totaled $1.59 billion at the closing date of January 31, 2026.
Investment Securities
Total investment securities increased $387.8 million, or 30.3%, to $1.67 billion at March 31, 2026, from $1.28 billion at December 31, 2025. The increase was primarily due to the Merger, with acquired balances of $312.0 million. The Company repositioned a portion of the portfolio acquired in the Merger during the first quarter of 2026, with sales of $193.5 million and purchases of $315.9 million. Purchases exceeded sales in the repositioning due to the investment of excess cash acquired in the Merger, which was a result of the sale of securities by Olympic during the month preceding the Merger. Investment maturities and repayments totaled $44.5 million during the first quarter of 2026.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:
March 31, 2026
December 31, 2025
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Investment securities available for sale, at fair value:
U.S. government and agency securities
$ 11,861
0.7 %
$ 11,702
0.9 %
$ 159
1.4 %
Municipal securities
63,972
3.8
51,423
4.0
12,549
24.4
Residential CMO and MBS (1)
497,228
29.8
275,268
21.5
221,960
80.6
Commercial CMO and MBS (1)
396,816
23.7
252,164
19.7
144,652
57.4
Corporate obligations
11,580
0.7
10,532
0.8
1,048
10.0
Other asset-backed securities
19,691
1.2
6,433
0.5
13,258
206.1
Total
$ 1,001,148
59.9 %
$ 607,522
47.4 %
$ 393,626
64.8 %
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities
$ 151,341
9.1 %
$ 151,319
11.8 %
$ 22
— %
Residential CMO and MBS (1)
213,096
12.8
217,707
17.0
(4,611)
(2.1)
Commercial CMO and MBS (1)
303,826
18.2
305,081
23.8
(1,255)
(0.4)
Total
$ 668,263
40.1 %
$ 674,107
52.6 %
$ (5,844)
(0.9) %
Total investment securities
$ 1,669,411
100.0 %
$ 1,281,629
100.0 %
$ 387,782
30.3 %
(1)
U.S. government agency and government-sponsored enterprise CMO and MBS.
Loans Receivable
Loans receivable increased $939.0 million, or 19.6%, during the first quarter of 2026 due primarily to loans acquired in the Merger. New loans funded during the first quarter of 2026 were $97.0 million, which was lower than new loans funded during the fourth quarter of 2025 of $173.1 million and in line with new loans funded during the first quarter of 2025 of $95.8 million. Loan prepayments were similar to the prior quarter at $72.5 million, compared to $77.2 million during the fourth quarter of 2025. Loan payoffs decreased to $46.5 million, compared to $74.5 million in the prior quarter.
The following table summarizes the composition of acquired loans at the Merger date of January 31, 2026:
January 31, 2026
Balance
% of
Total
Merger - Loan Composition
(Dollars in thousands)
Commercial business:
Commercial and industrial
$ 251,819
26.4 %
Owner-occupied CRE
172,141
18.0 %
Non-owner occupied CRE
414,899
43.5 %
Total commercial business
838,859
87.9 %
Residential real estate
11,703
1.2 %
Real estate construction and land development:
Residential
26,765
2.8 %
Commercial and multifamily
35,894
3.8 %
Total real estate construction and land development
62,659
6.6 %
Consumer
41,079
4.3 %
Loans receivable
954,300
100.0 %
The following table summarizes the Company's loans receivable at the dates indicated:
March 31, 2026
December 31, 2025
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Commercial business:
Commercial and industrial
$ 1,059,457
18.5 %
$ 818,000
17.1 %
$ 241,457
29.5 %
Owner-occupied CRE
1,213,585
21.2
1,034,829
21.6
178,756
17.3
Non-owner occupied CRE
2,466,417
43.1
2,057,844
43.0
408,573
19.9
Total commercial business
4,739,459
82.8
3,910,673
81.7
828,786
21.2
Residential real estate
361,384
6.3
358,834
7.5
2,550
0.7
Real estate construction and land development:
Residential
123,409
2.2
95,350
2.0
28,059
29.4
Commercial and multifamily
288,493
5.0
247,975
5.2
40,518
16.3
Total real estate construction and land
development
411,902
7.2
343,325
7.2
68,577
20.0
Consumer
209,493
3.7
170,434
3.6
39,059
22.9
Loans receivable
$ 5,722,238
100.0 %
$ 4,783,266
100.0 %
$ 938,972
19.6
Deposits
Total deposits increased $1.33 billion, or 22.4%, to $7.25 billion at March 31, 2026 from $5.92 billion at December 31, 2025 due primarily to deposits acquired in the Merger.
The following table summarizes the composition of acquired deposits at the Merger date of January 31, 2026:
January 31, 2026
Balance
% of Total
Merger - Deposit Composition
(Dollars in thousands)
Noninterest demand deposits
$ 410,394
29.5 %
Interest bearing demand deposits
336,742
24.2 %
Money market accounts
217,685
15.7 %
Savings accounts
175,032
12.6 %
Total non-maturity deposits
1,139,853
82.1 %
Certificates of deposit
249,143
17.9 %
Total deposits
$ 1,388,996
100.0 %
Total deposits, excluding the $1.39 billion of deposits acquired in the Merger, decreased $60.7 million during the first quarter of 2026 due primarily to the maturity of brokered certificates of deposit of $29 million.
The following table summarizes the Company's total deposits at the dates indicated:
March 31, 2026
December 31, 2025
Change
Balance
% of
Total
Balance
% of
Total
$
%
(Dollars in thousands)
Noninterest demand deposits
$ 2,066,383
28.5 %
$ 1,597,650
27.0 %
$ 468,733
29.3 %
Interest bearing demand deposits
1,860,679
25.7
1,627,259
27.5
233,420
14.3
Money market accounts
1,588,678
21.9
1,334,904
22.5
253,774
19.0
Savings accounts
606,119
8.4
422,523
7.1
183,596
43.5
Total non-maturity deposits
6,121,859
84.5
4,982,336
84.1
1,139,523
22.9
Certificates of deposit
1,126,678
15.5
937,863
15.9
188,815
20.1
Total deposits
$ 7,248,537
100.0 %
$ 5,920,199
100.0 %
$ 1,328,338
22.4 %
Borrowings
Total borrowings were $20.0 million at March 31, 2026 and December 31, 2025. All outstanding borrowings at March 31, 2026 were with the Federal Home Loan Bank ("FHLB") and mature within one year.
Stockholders' Equity
Total stockholders' equity increased $194.2 million, or 21.1%, to $1.12 billion at March 31, 2026, compared to $921.5 million at December 31, 2025. The increase was due primarily to the common stock issued for the Merger.
The following table summarizes changes in stockholders' equity for the Company for the period indicated:
Quarter Ended
March 31,
2026
(In thousands)
Balance, beginning of period
$ 921,504
Common stock issued in the Merger
184,996
Net income
18,947
Cash dividends declared on common stock
(8,311)
Other comprehensive loss
(1,781)
Other
336
Balance, end of period
$ 1,115,691
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements to be categorized as "well-capitalized" at March 31, 2026.
The following table summarizes the capital ratios for the Company at the dates indicated:
March 31,
2026
December 31,
2025
Stockholders' equity to total assets
13.1 %
13.2 %
Tangible common equity to tangible assets (1)
9.6
10.1
Common equity tier 1 capital ratio (2)
12.2
12.7
Leverage ratio (2)
10.3
10.8
Tier 1 capital ratio (2)
12.5
13.1
Total capital ratio (2)
13.5
14.1
(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 1.06% at March 31, 2026 compared to 1.10% at December 31, 2025. The decrease in the ACL as a percentage of loans was due primarily to the addition of the loan portfolio acquired in the Merger, which had a lower weighted average life of loans contributing to a lower ACL. On January 31, 2026, the Company recorded an initial ACL of $9.3 million for the PSL and PCD loans under ASU 2025-08 as part of the acquisition of Olympic. The ACL on loans as a percentage of loans receivable for the acquired portfolio as of the acquisition date was 0.98%.
During the first quarter of 2026, the Company recorded a $0.8 million reversal of provision for credit losses on loans, compared to a $0.9 million reversal of provision during the fourth quarter of 2025. During the first quarter of 2026, the Company recorded a $210,000 reversal provision for credit losses on unfunded commitments compared to a $95,000 provision during the fourth quarter of 2025. The reversal of provision for credit losses on unfunded commitments during the first quarter of 2026 was due primarily to an increase in utilization rates.
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
March 31, 2026
December 31, 2025
March 31, 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
$ 52,584
$ 1,047
$ 53,631
$ 53,974
$ 952
$ 54,926
$ 52,468
$ 587
$ 53,055
Initial ACL recorded for
the Merger
9,339
348
$ 9,687
—
—
$ —
—
—
$ —
(Reversal of) provision
for credit losses
(820)
(210)
(1,030)
(909)
95
(814)
(9)
60
51
(Net charge-offs) /
recoveries
(552)
—
(552)
(481)
—
(481)
(299)
—
(299)
Balance, end of period
$ 60,551
$ 1,185
$ 61,736
$ 52,584
$ 1,047
$ 53,631
$ 52,160
$ 647
$ 52,807
Credit Quality
Classified loans (loans rated substandard or worse) increased $4.5 million from the prior quarter and was due primarily to the addition of classified loans acquired from Olympic of $11.4 million, offset by loan payoffs. The percentage of classified loans to loans receivable decreased to 2.1% at March 31, 2026, compared to 2.4% at December 31, 2025 due to an increase in total loans as a result of the Merger during the first quarter of 2026.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
March 31, 2026
December 31, 2025
Balance
% of
Total
Balance
% of
Total
(Dollars in thousands)
Risk Rating:
Pass
$ 5,497,208
96.1 %
$ 4,595,321
96.1 %
Special Mention
103,699
1.8
71,122
1.5
Substandard
121,331
2.1
116,823
2.4
Total
$ 5,722,238
100.0 %
$ 4,783,266
100.0 %
Nonaccrual loans decreased by $6.0 million during the first quarter of 2026 due primarily to principal payoffs of one $5.8 million residential construction loan, one $1.5 million CRE non-owner occupied loan, and one $0.5 million CRE owner-occupied loan, offset partially by the migration of three commercial and industrial loans totaling $2.6 million, one $0.5 million CRE owner-occupied loan, and one $0.2 million residential construction loan. Olympic did not have any nonaccrual loans as of the acquisition date of January 31, 2026.
The following table illustrates changes in nonaccrual loans during the periods indicated:
Quarter Ended
March 31,
2026
December 31,
2025
March 31,
2025
(Dollars in thousands)
Balance, beginning of period
$ 20,976
$ 17,612
$ 4,079
Additions
3,388
4,446
832
Net principal payments
(261)
(1,082)
(214)
Payoffs
(7,800)
—
(38)
Charge-offs
(463)
—
(221)
Transfer to OREO
(741)
—
—
Return to accrual
(141)
—
—
Balance, end of period
$ 14,958
$ 20,976
$ 4,438
Nonaccrual loans to loans receivable
0.26 %
0.44 %
0.09 %
Liquidity
Total liquidity sources available at March 31, 2026 were $3.20 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 March 31, 2026 represented a coverage ratio of 44.2% of total deposits and 113.0% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity as of the dates indicated:
Quarter Ended
March 31,
2026
December 31,
2025
(Dollars in thousands)
On-balance sheet liquidity
Cash and cash equivalents
$ 268,143
$ 233,089
Unencumbered investment securities available for sale (1)
978,332
606,968
Total on-balance sheet liquidity
$ 1,246,475
$ 840,057
Off-balance sheet liquidity
FRB borrowing availability
$ 341,449
$ 346,307
FHLB borrowing availability (2)
1,469,277
1,285,640
Fed funds line borrowing availability with correspondent banks
145,000
145,000
Total off-balance sheet liquidity
$ 1,955,726
$ 1,776,947
Total available liquidity
$ 3,202,201
$ 2,617,004
(1)
Investment securities available for sale at fair value.
(2)
Includes FHLB total borrowing availability of $1.49 billion at March 31, 2026 based on pledged assets, however, maximum credit capacity was 45% of the Bank's total assets one quarter in arrears or $3.13 billion.
Net Interest Income and Net Interest Margin
Net interest income increased $10.9 million, or 18.6%, during the first quarter of 2026 compared to the fourth quarter of 2025 due to an $11.8 million increase in total interest income, offset partially by an increase in interest expense of $1.0 million. The increase in net interest income was primarily due to an increase in average interest earning assets, which grew substantially as a result of the Merger.
Net interest margin increased 24 basis points to 3.96% during the first quarter of 2026, from 3.72% during the fourth quarter of 2025. The increase in net interest margin was due primarily to the increase in net interest income as discussed above with the primary contributor being increases in both the average loan balance and loan yield as a result of the Merger.
The yield on interest earning assets increased 16 basis points to 5.19% for the first quarter of 2026, compared to 5.03% for the fourth quarter of 2025. The yield on loans receivable increased 19 basis points to 5.73% during the first quarter of 2026, compared to 5.54% during the fourth quarter of 2025. The increase was due primarily to the incremental accretion on purchased loans which contributed 12 basis points to loan yield and interest income recognized on nonaccrual loans which contributed six basis points to loan yield. The incremental accretion and the impact to loan yield will change during any period based on the volume of prepayments, but is expected to decrease over time as the balance of the purchased loans decreases.
The cost of interest bearing deposits decreased 12 basis points to 1.71% for the first quarter of 2026, from 1.83% for the fourth quarter of 2025. This decrease was primarily due to the deposits acquired from Olympic, which had a lower cost of deposits.
Net interest margin increased 52 basis points to 3.96% during the first quarter of 2026, compared to 3.44% for the same period in the prior year. Net interest income increased $15.5 million, or 28.9%, during the first quarter of 2026 compared to the same period in the prior year. The increase was due primarily to an increase in average interest earning assets, which increased substantially as a result of the Merger.
The following table provides net interest income information for the periods indicated:
Quarter Ended
March 31, 2026
December 31, 2025
March 31, 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)
$ 5,412,943
$ 76,445
5.73 %
$ 4,770,300
$ 66,669
5.54 %
$ 4,793,917
$ 64,436
5.45 %
Taxable securities
1,486,343
12,570
3.43
1,285,948
10,546
3.25
1,427,976
11,739
3.33
Nontaxable securities (3)
15,662
129
3.34
15,578
135
3.44
15,686
139
3.59
Interest earning deposits
172,723
1,531
3.59
151,477
1,512
3.96
96,118
1,052
4.44
Total interest earning assets
7,087,671
90,675
5.19 %
6,223,303
78,862
5.03 %
6,333,697
77,366
4.95 %
Noninterest earning assets
847,331
730,807
769,530
Total assets
$ 7,935,002
$ 6,954,110
$ 7,103,227
Interest Bearing Liabilities:
Certificates of deposit
$ 1,064,676
$ 8,814
3.36 %
$ 950,097
$ 8,425
3.52 %
$ 980,336
$ 9,670
4.00 %
Savings accounts
540,403
315
0.24
424,214
277
0.26
426,321
293
0.28
Interest bearing demand and
money market accounts
3,303,007
11,618
1.43
2,876,278
10,874
1.50
2,705,686
9,526
1.43
Total interest bearing deposits
4,908,086
20,747
1.71
4,250,589
19,576
1.83
4,112,343
19,489
1.92
Junior subordinated debentures
22,382
430
7.79
22,312
455
8.09
22,086
471
8.65
Securities sold under agreement
to repurchase
—
—
—
—
—
—
—
—
—
Borrowings
27,372
279
4.13
43,228
470
4.31
320,286
3,716
4.71
Total interest bearing
liabilities
4,957,840
21,456
1.76 %
4,316,129
20,501
1.88 %
4,454,715
23,676
2.16 %
Noninterest demand deposits
1,833,284
1,635,539
1,631,268
Other noninterest bearing
liabilities
94,834
90,988
150,615
Stockholders' equity
1,049,044
911,454
866,629
Total liabilities and
stockholders' equity
$ 7,935,002
$ 6,954,110
$ 7,103,227
Net interest income and spread
$ 69,219
3.43 %
$ 58,361
3.15 %
$ 53,690
2.79 %
Net interest margin
3.96 %
3.72 %
3.44 %
(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 $0.8 million, $1.0 million and $0.8 million for the first quarter of 2026, fourth quarter of 2025 and first quarter of 2025, respectively and the incremental accretion on purchased loans of $1.6 million, $49,000, and $153,000 for the first quarter of 2026, fourth quarter of 2025 and first quarter of 2025, respectively.
(3)
Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
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
March 31,
2026
December 31,
2025
March 31,
2025
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
Net interest margin
3.96 %
3.72 %
3.44 %
Exclude impact from incremental accretion on purchased loans (2)
(0.09) %
— %
(0.01) %
Net interest margin, excluding incremental accretion on purchased
loans (1)
3.87 %
3.72 %
3.43 %
Loan yield, excluding incremental accretion on purchased loans, annualized:
Loan yield
5.73 %
5.54 %
5.45 %
Exclude impact from incremental accretion on purchased loans (2)
(0.12)
—
(0.01)
Loan yield, excluding incremental accretion on purchased loans (1)
5.61 %
5.54 %
5.44 %
Incremental accretion on purchased loans (1)
$ 1,623
$ 49
$ 153
(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.
Noninterest Income
Noninterest income increased $712,000 to $8.7 million during the first quarter of 2026 from $8.0 million during the fourth quarter of 2025. The increase was due primarily to increases in service charges and other fees, card revenue and other income due to income from the acquired deposit portfolio, offset partially by a decrease in interest rate swap fees due to decreased swap activity.
Noninterest income increased $4.8 million during the first quarter of 2026 from the same period in 2025 due primarily to a $3.9 million loss recognized in the first 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 acquired deposit portfolio and acquired BOLI.
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
March 31,
2026
December 31,
2025
March 31,
2025
$
%
$
%
(Dollars in thousands)
Service charges and other fees
$ 3,367
$ 3,052
$ 2,975
$ 315
10.3 %
$ 392
13.2 %
Card revenue
2,103
1,792
1,733
311
17.4
370
21.4
Loss on sale of investment securities
—
—
(3,887)
—
—
3,887
100.0
Interest rate swap fees
—
381
—
(381)
(100.0)
—
—
BOLI income
1,119
1,172
918
(53)
(4.5)
201
21.9
Gain on sale of other assets, net
—
—
3
—
—
(3)
(100.0)
Other income
2,110
1,590
2,161
520
32.7
(51)
(2.4)
Total noninterest income (loss)
$ 8,699
$ 7,987
$ 3,903
$ 712
8.9 %
$ 4,796
122.9 %
Noninterest Expense
Noninterest expense increased $15.1 million, or 36.3%, to $56.6 million during the first quarter of 2026, compared to $41.5 million in the fourth quarter of 2025. The increases were primarily due to expenses from the Merger, including increases related to compensation and employee benefits due to increased headcount, severance expense, occupancy and equipment expense primarily due to additional rent expense, and additional data processing expense due to an increase in transactional accounts and balances. Noninterest expense also increased due to an increase in the amortization of intangible assets of $1.8 million, relating to the Merger. Professional fees increased due primarily to Merger-related costs recognized in the first quarter of 2026. Total Merger-related costs, which consisted of severance expense, professional fees, core conversion costs, and contract termination costs incurred in the first quarter of 2026 were $5.2 million compared to $385,000 in the fourth quarter of 2025.
Noninterest expense increased $15.2 million, or 36.7%, during the first quarter of 2026 compared to the same period in 2025 due primarily to an increase in expenses related to the Merger.
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
March 31,
2026
December 31,
2025
March 31,
2025
$
%
$
%
(Dollars in thousands)
Compensation and employee
benefits
$ 33,972
$ 26,675
$ 25,799
$ 7,297
27.4 %
$ 8,173
31.7 %
Occupancy and equipment
5,330
4,450
4,926
880
19.8
404
8.2
Data processing
5,093
3,681
3,897
1,412
38.4
1,196
30.7
Marketing
383
296
335
87
29.4
48
14.3
Professional services
2,842
1,070
734
1,772
165.6
2,108
287.2
State/municipal business and use
taxes
1,674
1,247
1,220
427
34.2
454
37.2
Federal deposit insurance premium
1,037
789
812
248
31.4
225
27.7
Other real estate owned, net
4
—
—
4
—
4
—
Amortization of intangible assets
2,058
285
303
1,773
622.1
1,755
579.2
Other expense
4,158
2,990
3,357
1,168
39.1
801
23.9
Total noninterest expense
$ 56,551
$ 41,483
$ 41,383
$ 15,068
36.3 %
$ 15,168
36.7 %
Income Tax Expense
The effective income tax rate increased due to lower impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.
Income tax expense and the effective income tax rate increased in the first quarter of 2026, compared to same period in 2025 due primarily to higher pre-tax income during the first quarter of 2026 and lower impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended
Change
March 31,
2026
December 31,
2025
March 31,
2025
Quarter Over
Quarter
Prior Year
Quarter
(Dollars in thousands)
Income before income taxes
$ 22,397
$ 25,679
$ 16,159
$ (3,282)
$ 6,238
Income tax expense
$ 3,450
$ 3,442
$ 2,248
$ 8
$ 1,202
Effective income tax rate
15.4 %
13.4 %
13.9 %
2.0 %
1.5 %
Dividends
On April 22, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on May 20, 2026 to shareholders of record as of the close of business on May 6, 2026.
Earnings Conference Call
The Company will hold a telephone conference call to discuss first quarter of 2026 earnings on Thursday, April 23, 2026 at 10:00 a.m. Pacific time. To access the call, please dial (800) 715-9871 -- access code 74100 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through May 7, 2026 by dialing (609) 800-9909 -- access code 74100#.
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 Merger. 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 includes "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 and the military conflict between Israel and Hamas in the Middle East, and 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; 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; 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)
March 31,
2026
December 31,
2025
Assets
Cash on hand and in banks
$ 98,263
$ 52,587
Interest earning deposits
169,880
180,502
Cash and cash equivalents
268,143
233,089
Investment securities available for sale, at fair value (amortized cost of $1,043,442 and
$647,505, respectively)
1,001,148
607,522
Investment securities held to maturity, at amortized cost (fair value of $617,490 and
$625,287, respectively)
668,263
674,107
Total investment securities
1,669,411
1,281,629
Loans receivable
5,722,238
4,783,266
Allowance for credit losses on loans
(60,551)
(52,584)
Loans receivable, net
5,661,687
4,730,682
Other real estate owned
755
—
Premises and equipment, net
100,509
74,690
Federal Home Loan Bank stock, at cost
6,072
5,163
Bank owned life insurance
144,865
105,974
Accrued interest receivable
24,278
19,280
Prepaid expenses and other assets
293,429
273,925
Other intangible assets, net
50,226
1,979
Goodwill
279,029
240,939
Total assets
$ 8,498,404
$ 6,967,350
Liabilities and Stockholders' Equity
Non-interest bearing deposits
2,066,383
1,597,650
Interest bearing deposits
5,182,154
4,322,549
Total deposits
7,248,537
5,920,199
Borrowings
20,000
20,000
Junior subordinated debentures
22,424
22,350
Accrued expenses and other liabilities
91,752
83,297
Total liabilities
7,382,713
6,045,846
Common stock
716,432
531,100
Retained earnings
432,255
421,619
Accumulated other comprehensive loss, net
(32,996)
(31,215)
Total stockholders' equity
1,115,691
921,504
Total liabilities and stockholders' equity
$ 8,498,404
$ 6,967,350
Shares outstanding
41,249,873
33,963,500
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
March 31,
2026
December 31,
2025
March 31,
2025
Interest Income
Interest and fees on loans
$ 76,445
$ 66,669
$ 64,436
Taxable interest on investment securities
12,570
10,546
11,739
Nontaxable interest on investment securities
129
135
139
Interest on interest earning deposits
1,531
1,512
1,052
Total interest income
90,675
78,862
77,366
Interest Expense
Deposits
20,747
19,576
19,489
Junior subordinated debentures
430
455
471
Borrowings
279
470
3,716
Total interest expense
21,456
20,501
23,676
Net interest income
69,219
58,361
53,690
(Reversal of) provision for credit losses
(1,030)
(814)
51
Net interest income after (reversal of) provision for credit losses
70,249
59,175
53,639
Noninterest Income
Service charges and other fees
3,367
3,052
2,975
Card revenue
2,103
1,792
1,733
Loss on sale of investment securities, net
—
—
(3,887)
Interest rate swap fees
—
381
—
Bank owned life insurance income
1,119
1,172
918
Gain on sale of other assets, net
—
—
3
Other income
2,110
1,590
2,161
Total noninterest income (loss)
8,699
7,987
3,903
Noninterest Expense
Compensation and employee benefits
33,972
26,675
25,799
Occupancy and equipment
5,330
4,450
4,926
Data processing
5,093
3,681
3,897
Marketing
383
296
335
Professional services
2,842
1,070
734
State/municipal business and use taxes
1,674
1,247
1,220
Federal deposit insurance premium
1,037
789
812
Other real estate owned, net
4
—
—
Amortization of intangible assets
2,058
285
303
Other expense
4,158
2,990
3,357
Total noninterest expense
56,551
41,483
41,383
Income before income taxes
22,397
25,679
16,159
Income tax expense
3,450
3,442
2,248
Net income
$ 18,947
$ 22,237
$ 13,911
Basic earnings per share
$ 0.49
$ 0.66
$ 0.41
Diluted earnings per share
$ 0.48
$ 0.65
$ 0.40
Dividends declared per share
$ 0.24
$ 0.24
$ 0.24
Average shares outstanding - basic
38,683,375
33,957,987
34,012,490
Average shares outstanding - diluted
39,104,569
34,405,793
34,506,238
HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:
Quarter Ended
March 31,
2026
December 31,
2025
March 31,
2025
Allowance for Credit Losses on Loans:
Balance, beginning of period
$ 52,584
$ 53,974
$ 52,468
Initial ACL recorded for PSL and PCD loans acquired during the
period
9,339
—
—
(Reversal of) provision for credit losses on loans
(820)
(909)
(9)
Charge-offs:
Commercial business
(400)
(565)
(222)
Residential real estate
(64)
—
—
Real estate construction and land development
—
—
—
Consumer
(119)
(75)
(154)
Total charge-offs
(583)
(640)
(376)
Recoveries:
Commercial business
4
140
26
Residential real estate
—
—
—
Real estate construction and land development
—
—
—
Consumer
27
19
51
Total recoveries
31
159
77
Net (charge-offs) recoveries
(552)
(481)
(299)
Balance, end of period
$ 60,551
$ 52,584
$ 52,160
Net charge-offs on loans to average loans receivable (1)
0.04 %
0.04 %
0.03 %
(1)
Annualized.
March 31,
2026
December 31,
2025
Nonperforming Assets:
Nonaccrual loans:
Commercial business
$ 7,454
$ 6,886
Residential real estate
583
1,196
Real estate construction and land development
6,514
12,408
Consumer
407
486
Total nonaccrual loans
14,958
20,976
Accruing loans past due 90 days or more
67
194
Total nonperforming loans
15,025
21,170
Other real estate owned
755
—
Nonperforming assets
$ 15,780
$ 21,170
ACL on loans to:
Loans receivable
1.06 %
1.10 %
Nonaccrual loans
404.81
250.69
Nonaccrual loans to loans receivable
0.26
0.44
Nonperforming loans to loans receivable
0.26
0.44
Nonperforming assets to total assets
0.19
0.30
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Earnings:
Net interest income
$ 69,219
$ 58,361
$ 57,371
$ 54,983
$ 53,690
(Reversal of) provision for credit losses
(1,030)
(814)
1,775
956
51
Noninterest income
8,699
7,987
8,325
1,517
3,903
Noninterest expense
56,551
41,483
41,615
41,085
41,383
Net income
18,947
22,237
19,169
12,215
13,911
Basic earnings per share
$ 0.49
$ 0.66
$ 0.56
$ 0.36
$ 0.41
Diluted earnings per share
$ 0.48
$ 0.65
$ 0.55
$ 0.36
$ 0.40
Adjusted diluted earnings per share (1)
$ 0.59
$ 0.66
$ 0.56
$ 0.53
$ 0.49
Average Balances:
Loans receivable
$ 5,412,943
$ 4,770,300
$ 4,762,648
$ 4,768,558
$ 4,793,917
Total investment securities
1,502,005
1,301,526
1,329,616
1,390,064
1,443,662
Total interest earning assets
7,087,671
6,223,303
6,258,446
6,286,309
6,333,697
Total assets
7,935,002
6,954,110
7,006,140
7,046,943
7,103,227
Total interest bearing deposits
4,908,086
4,250,589
4,217,041
4,176,052
4,112,343
Total noninterest demand deposits
1,833,284
1,635,539
1,625,945
1,602,987
1,631,268
Stockholders' equity
1,049,044
911,454
892,280
879,808
866,629
Financial Ratios:
Return on average assets (2)
0.97 %
1.27 %
1.09 %
0.70 %
0.79 %
Return on average common equity (2)
7.32
9.68
8.52
5.57
6.51
Return on average tangible common
equity (1)(2)
11.14
13.33
11.86
7.85
9.22
Adjusted return on average tangible
common equity (1)(2)
13.36
13.51
12.16
11.59
11.21
Efficiency ratio
72.6
62.5
63.3
72.7
71.9
Adjusted efficiency ratio (1)
63.3
61.5
61.9
64.4
66.8
Noninterest expense to average total
assets (2)
2.89
2.37
2.36
2.34
2.36
Adjusted noninterest expense to
average total assets (1)(2)
2.52
2.33
2.30
2.32
2.35
Net interest spread (2)
3.43
3.15
3.03
2.89
2.79
Net interest margin (2)
3.96
3.72
3.64
3.51
3.44
(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
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Select Balance Sheet:
Total assets
$ 8,498,404
$ 6,967,350
$ 7,011,879
$ 7,070,641
$ 7,129,862
Loans receivable
5,722,238
4,783,266
4,769,160
4,774,855
4,764,848
Total investment securities
1,669,411
1,281,629
1,312,857
1,346,274
1,413,903
Total deposits
7,248,537
5,920,199
5,857,464
5,784,413
5,845,335
Noninterest demand deposits
2,066,383
1,597,650
1,617,909
1,584,231
1,621,890
Stockholders' equity
1,115,691
921,504
904,064
888,212
881,515
Financial Measures:
Book value per share
$ 27.05
$ 27.13
$ 26.62
$ 26.16
$ 25.85
Tangible book value per share (1)
19.07
19.98
19.46
18.99
18.70
Stockholders' equity to total assets
13.1 %
13.2 %
12.9 %
12.6 %
12.4 %
Tangible common equity to tangible
assets (1)
9.6
10.1
9.8
9.4
9.3
Loans to deposits ratio
78.9
80.8
81.4
82.5
81.5
Regulatory Capital Ratios: (2)
Common equity tier 1 capital ratio
12.2 %
12.7 %
12.4 %
12.2 %
12.2 %
Leverage ratio
10.3
10.8
10.5
10.3
10.2
Tier 1 capital ratio
12.5
13.1
12.8
12.6
12.6
Total capital ratio
13.5
14.1
13.8
13.6
13.6
Credit Quality Metrics:
ACL on loans to:
Loans receivable
1.06 %
1.10 %
1.13 %
1.10 %
1.09 %
Nonaccrual loans
404.8
250.7
306.5
532.5
1,175.3
Nonaccrual loans to loans receivable
0.26
0.44
0.37
0.21
0.09
Nonperforming loans to loans
receivable
0.26
0.44
0.44
0.39
0.09
Nonperforming assets to total assets
0.19
0.30
0.30
0.26
0.06
Net charge-offs on loans to average
loans receivable (3)
0.04
0.04
0.01
0.04
0.03
Criticized Loans by Credit Quality Rating:
Special mention
$ 103,699
$ 71,122
$ 100,160
$ 114,146
$ 113,704
Substandard
121,331
116,823
94,377
99,715
64,387
Other Metrics:
Number of branches
65
50
50
50
50
Deposits per branch
$ 111,516
$ 118,404
$ 117,149
$ 115,688
$ 116,907
Average number of full-time equivalent
employees
905
742
749
745
757
Average assets per full-time
equivalent employee
8,768
9,372
9,354
9,459
9,383
(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.
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Diluted Earnings per Share and Adjusted Diluted Earnings per Share:
Net income (GAAP)
$ 18,947
$ 22,237
$ 19,169
$ 12,215
$ 13,911
Exclude loss on sale of
investment securities, net
—
—
—
6,854
3,887
Exclude merger related costs
5,178
385
635
—
—
Exclude gain on sale of premises
and equipment
—
—
—
(5)
(3)
Exclude tax effect of adjustment
(1,087)
(81)
(133)
(1,438)
(816)
Exclude tax expense related to
BOLI restructuring
—
—
—
515
—
Adjusted net income (non-GAAP)
$ 23,038
$ 22,541
$ 19,671
$ 18,141
$ 16,979
Average number of diluted shares
outstanding
39,104,569
34,405,793
34,413,386
34,446,710
34,506,238
Diluted earnings per share (GAAP)
$ 0.48
$ 0.65
$ 0.55
$ 0.36
$ 0.40
Adjusted diluted earnings per share
(non-GAAP)
$ 0.59
$ 0.66
$ 0.56
$ 0.53
$ 0.49
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.
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)
$ 1,115,691
$ 921,504
$ 904,064
$ 888,212
$ 881,515
Exclude intangible assets
(329,255)
(242,918)
(243,203)
(243,487)
(243,789)
Tangible common equity (non-GAAP)
$ 786,436
$ 678,586
$ 660,861
$ 644,725
$ 637,726
Total assets (GAAP)
$ 8,498,404
$ 6,967,350
$ 7,011,879
$ 7,070,641
$ 7,129,862
Exclude intangible assets
(329,255)
(242,918)
(243,203)
(243,487)
(243,789)
Tangible assets (non-GAAP)
$ 8,169,149
$ 6,724,432
$ 6,768,676
$ 6,827,154
$ 6,886,073
Stockholders' equity to total assets
(GAAP)
13.1 %
13.2 %
12.9 %
12.6 %
12.4 %
Tangible common equity to tangible
assets (non-GAAP)
9.6 %
10.1 %
9.8 %
9.4 %
9.3 %
Shares outstanding
41,249,873
33,963,500
33,956,738
33,953,194
34,105,516
Book value per share (GAAP)
$ 27.05
$ 27.13
$ 26.62
$ 26.16
$ 25.85
Tangible book value per share
(non-GAAP)
$ 19.07
$ 19.98
$ 19.46
$ 18.99
$ 18.70
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
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)
$ 18,947
$ 22,237
$ 19,169
$ 12,215
$ 13,911
Add amortization of intangible
assets
2,058
285
284
302
303
Exclude tax effect of adjustment
(432)
(60)
(60)
(63)
(64)
Tangible net income (non-GAAP)
$ 20,573
$ 22,462
$ 19,393
$ 12,454
$ 14,150
Tangible net income (non-GAAP)
$ 20,573
$ 22,462
$ 19,393
$ 12,454
$ 14,150
Exclude loss on sale of
investment securities, net
—
—
—
6,854
3,887
Exclude merger related costs
5,178
385
635
—
—
Exclude gain on sale of premises
and equipment
—
—
—
(5)
(3)
Exclude tax effect of adjustment
(1,087)
(81)
(133)
(1,438)
(816)
Exclude tax expense related to
BOLI restructuring
—
—
—
515
—
Adjusted tangible net income (non-GAAP)
$ 24,664
$ 22,766
$ 19,895
$ 18,380
$ 17,218
Average stockholders' equity (GAAP)
$ 1,049,044
$ 911,454
$ 892,280
$ 879,808
$ 866,629
Exclude average intangible assets
(300,391)
(243,069)
(243,350)
(243,651)
(243,945)
Average tangible common
stockholders' equity (non-GAAP)
$ 748,653
$ 668,385
$ 648,930
$ 636,157
$ 622,684
Return on average common equity,
annualized (GAAP)
7.32 %
9.68 %
8.52 %
5.57 %
6.51 %
Return on average tangible common
equity, annualized (non-GAAP)
11.14 %
13.33 %
11.86 %
7.85 %
9.22 %
Adjusted return on average tangible
common equity, annualized (non-
GAAP)
13.36 %
13.51 %
12.16 %
11.59 %
11.21 %
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
March 31,
2026
December 31,
2025
September 30,
2025
June 30,
2025
March 31,
2025
Adjusted Efficiency Ratio and Adjusted Noninterest Expense to Average Assets Ratio:
Total noninterest expense (GAAP)
$ 56,551
$ 41,483
$ 41,615
$ 41,085
$ 41,383
Exclude Merger-related costs
5,178
385
635
—
—
Exclude amortization of
intangible assets
2,058
285
284
302
303
Adjusted noninterest expense (non-
GAAP)
$ 49,315
$ 40,813
$ 40,696
$ 40,783
$ 41,080
Net interest income (GAAP)
$ 69,219
$ 58,361
$ 57,371
$ 54,983
$ 53,690
Total noninterest income (GAAP)
$ 8,699
$ 7,987
$ 8,325
$ 1,517
$ 3,903
Exclude loss on sale of
investment securities, net
—
—
—
6,854
3,887
Exclude gain on sale of premises
and equipment
—
—
—
(5)
(3)
Adjusted total noninterest income
(non-GAAP)
$ 8,699
$ 7,987
$ 8,325
$ 8,366
$ 7,787
Efficiency ratio (GAAP)
72.6 %
62.5 %
63.3 %
72.7 %
71.9 %
Adjusted efficiency ratio (non-GAAP)
63.3 %
61.5 %
61.9 %
64.4 %
66.8 %
Average Total assets
$ 7,935,002
$ 6,954,110
$ 7,006,140
$ 7,046,943
$ 7,103,227
Noninterest expense to average
assets (GAAP)
2.89 %
2.37 %
2.36 %
2.34 %
2.36 %
Adjusted noninterest expense to
average assets (non-GAAP)
2.52 %
2.33 %
2.30 %
2.32 %
2.35 %
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
March 31,
2026
December 31,
2025
March 31,
2025
(Dollar amounts in thousands)
Loan yield, excluding incremental accretion on purchased loans, annualized:
Interest and fees on loans (GAAP)
$ 76,445
$ 66,669
$ 64,436
Exclude incremental accretion on purchased loans
1,623
49
153
Adjusted interest and fees on loans (non-GAAP)
$ 74,822
$ 66,620
$ 64,283
Average loans receivable, net (GAAP)
$ 5,412,943
$ 4,770,300
$ 4,793,917
Loan yield, annualized (GAAP)
5.73 %
5.54 %
5.45 %
Loan yield, excluding incremental accretion on purchased loans,
annualized (non-GAAP)
5.61 %
5.54 %
5.44 %
Net Interest Margin, excluding incremental accretion on purchased loans, annualized:
Net interest income before provision (GAAP)
$ 69,219
$ 58,361
$ 53,690
Exclude incremental accretion on purchased loans
1,623
49
153
Adjusted net interest income before provision (non-GAAP)
$ 67,596
$ 58,312
$ 53,537
Average Interest earning assets (GAAP)
$ 7,087,671
$ 6,223,303
$ 6,333,697
Net interest margin (GAAP)
3.96 %
3.72 %
3.44 %
Net interest margin, excluding incremental accretion on purchased loans
(non-GAAP)
3.87 %
3.72 %
3.43 %
SOURCE Heritage Financial Corporation