Heritage Financial Announces Second Quarter 2026 Results and Declares Regular Cash Dividend of $0.25 Per Share

Second Quarter 2026 Highlights

OLYMPIA, Wash., July 23, 2026 /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company," "we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $17.5 million for the second quarter of 2026, compared to $18.9 million for the first quarter of 2026 and $12.2 million for the second quarter of 2025. Diluted earnings per share was $0.42 for the second quarter of 2026, compared to $0.48 for the first quarter of 2026 and $0.36 for the second quarter of 2025. Adjusted diluted earnings per share (1) was $0.57 for the second quarter of 2026, compared to $0.59 for the first quarter of 2026 and $0.53 for the second quarter of 2025.

This is the first full quarter of financial results subsequent to the acquisition of Olympic Bancorp, Inc. (the "Merger") which closed on January 31, 2026. The Company recognized merger-related expenses of $7.5 million in the second quarter of 2026, compared to $5.2 million in the first quarter of 2026. After the systems conversion in the third quarter 2026, the Company will recognize additional cost savings.

Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We are pleased with the continued improvement in our net interest margin and our strong credit quality metrics. Although loan growth was muted by higher prepayments in the second quarter, we saw strong loan origination and continue to maintain a solid loan pipeline. As our fixed rate loans reprice to higher yields, we expect that our net interest margin will continue to improve. The increase in net interest margin, as well as the expected cost savings from the acquisition, provides optimism for enhanced future earnings."

(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

Financial Highlights

The following table provides financial highlights as of the dates and for the periods indicated:

As of or for the Quarter Ended

June 30,

2026

March 31,

2026

June 30,

2025

(Dollars in thousands, except per share amounts)

Net income

$ 17,546

$ 18,947

$ 12,215

Diluted earnings per share

0.42

0.48

0.36

Adjusted diluted earnings per share (1)

0.57

0.59

0.53

Return on average assets (2)

0.83 %

0.97 %

0.70 %

Adjusted return on average assets (1)(2)

1.12 %

1.18 %

1.03 %

Return on average common equity (2)

6.33

7.32

5.57

Return on average tangible common equity (1)(2)

10.17

11.14

7.85

Adjusted return on average tangible common equity (1)(2)

13.29

13.36

11.59

Net interest margin (2)

3.99

3.96

3.51

Cost of total deposits (2)

1.21

1.25

1.40

Efficiency ratio

76.5

72.6

72.7

Adjusted efficiency ratio (1)

63.9

63.3

64.4

Noninterest expense to average total assets (2)

3.06

2.89

2.34

Adjusted noninterest expense to average total assets (1)(2)

2.56

2.52

2.32

Total assets

$ 8,430,566

$ 8,498,404

$ 7,070,641

Loans receivable

5,747,741

5,722,238

4,774,855

Total deposits

7,038,706

7,248,537

5,784,413

Loan to deposit ratio (3)

81.7 %

78.9 %

82.5 %

Book value per share

$ 27.13

$ 27.05

$ 26.16

Tangible book value per share (1)

19.15

19.07

18.99

(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Annualized.

(3)

Loans receivable divided by total deposits.

Investment Securities

Total investment securities decreased $36.1 million, or 2.2%, to $1.63 billion at June 30, 2026, from $1.67 billion at March 31, 2026. The Company sold $38.1 million of investment securities at a pre-tax loss of $217,000 during the quarter. In addition, there were investment maturities and repayments of $35.8 million and a $6.4 million increase in unrealized losses on available for sale securities during the second quarter of 2026. These decreases to carrying value were partially offset by investment security purchases of $44.0 million during the second quarter of 2026.

The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:

June 30, 2026

March 31, 2026

Change

Balance

% of

Total

Balance

% of

Total

(Dollars in thousands)

Investment securities available for sale, at fair value:

U.S. government and agency securities

$ 11,823

0.7 %

$ 11,861

0.7 %

$ (38)

(0.3) %

Municipal securities

64,390

3.9

63,972

3.8

418

0.7

Residential CMO and MBS (1)

496,178

30.4

497,228

29.8

(1,050)

(0.2)

Commercial CMO and MBS (1)

363,713

22.2

396,816

23.7

(33,103)

(8.3)

Corporate obligations

16,423

1.0

11,580

0.7

4,843

41.8

Other asset-backed securities

18,910

1.2

19,691

1.2

(781)

(4.0)

Total

$ 971,437

59.4 %

$ 1,001,148

59.9 %

$ (29,711)

(3.0) %

Investment securities held to maturity, at amortized cost:

U.S. government and agency securities

$ 151,363

9.3 %

$ 151,341

9.1 %

$ 22

— %

Residential CMO and MBS (1)

207,387

12.7

213,096

12.8

(5,709)

(2.7)

Commercial CMO and MBS (1)

303,089

18.6

303,826

18.2

(737)

(0.2)

Total

$ 661,839

40.6 %

$ 668,263

40.1 %

$ (6,424)

(1.0) %

Total investment securities

$ 1,633,276

100.0 %

$ 1,669,411

100.0 %

$ (36,135)

(2.2) %

(1)

U.S. government agency and government-sponsored enterprise CMO and MBS.

Loans Receivable

Loans receivable increased $25.5 million, or 0.4%, during the second quarter of 2026. New loans funded during the second quarter of 2026 were $162.2 million, an increase from new loans funded during the first quarter of 2026 of $97.0 million and new loans funded during the second quarter of 2025 of $139.9 million. Loan prepayments were higher at $102.5 million during the second quarter of 2026, compared to $72.5 million during the first quarter of 2026. Loan payoffs were slightly higher at $49.9 million, compared to $46.5 million in the first quarter of 2026.

Commercial and industrial loans decreased $8.2 million, or 0.8%, during the second quarter of 2026, due primarily to pay downs on outstanding balances, partially offset by new loan production of $34.5 million. Owner-occupied commercial real estate ("CRE") loans increased $14.1 million, or 1.2%, during the second quarter, due primarily to new loan production of $41.8 million, offset by pay downs on outstanding balances. Non-owner occupied CRE loans increased $42.9 million, or 1.7%, during the quarter, due primarily to new loan production of $55.7 million, offset by pay downs on outstanding balances. Residential construction increased $13.2 million, or 10.7%, during the second quarter, due primarily to new loan production of $18.9 million, partially offset by pay downs on outstanding balances. Commercial and multifamily construction loans decreased $28.5 million or 9.9%, during the quarter, due primarily to pay downs on outstanding balances.

The following table summarizes the Company's loans receivable at the dates indicated:

June 30, 2026

March 31, 2026

Change

Balance

% of

Total

Balance

% of

Total

(Dollars in thousands)

Commercial business:

Commercial and industrial

$ 1,051,269

18.3 %

$ 1,059,457

18.5 %

$ (8,188)

(0.8) %

Owner-occupied CRE

1,227,674

21.4

1,213,585

21.2

14,089

1.2

Non-owner occupied CRE

2,509,283

43.6

2,466,417

43.1

42,866

1.7

Total commercial business

4,788,226

83.3

4,739,459

82.8

48,767

1.0

Residential real estate

348,838

6.1

361,384

6.3

(12,546)

(3.5)

Real estate construction and land development:

Residential

136,595

2.4

123,409

2.2

13,186

10.7

Commercial and multifamily

259,947

4.5

288,493

5.0

(28,546)

(9.9)

Total real estate construction and land

development

396,542

6.9

411,902

7.2

(15,360)

(3.7)

Consumer

214,135

3.7

209,493

3.7

4,642

2.2

Loans receivable

$ 5,747,741

100.0 %

$ 5,722,238

100.0 %

$ 25,503

0.4

Deposits

Total deposits decreased $209.8 million, or 2.9%, to $7.04 billion at June 30, 2026, from $7.25 billion at March 31, 2026.

Non-maturity deposits decreased by $138.4 million, or 2.3%, from March 31, 2026 due primarily to a decline in customer balances in noninterest bearing demand accounts as is typical in the second quarter of each year due to tax payments. Noninterest demand deposits declined mostly due a single deposit relationship which had approximately $67.0 million in funds which were deposited on a short-term basis in the first quarter of 2026 and withdrawn in the second quarter of 2026. Certificates of deposit declined $71.4 million during the second quarter of 2026 due mostly to the maturity of brokered certificates of deposit of $48.5 million.

The following table summarizes the Company's total deposits at the dates indicated:

June 30, 2026

March 31, 2026

Change

Balance

% of

Total

Balance

% of

Total

(Dollars in thousands)

Noninterest demand deposits

$ 1,972,702

28.0 %

$ 2,066,383

28.5 %

$ (93,681)

(4.5) %

Interest bearing demand deposits

1,854,634

26.3

1,860,679

25.7

(6,045)

(0.3)

Money market accounts

1,574,835

22.4

1,588,678

21.9

(13,843)

(0.9)

Savings accounts

581,259

8.3

606,119

8.4

(24,860)

(4.1)

Total non-maturity deposits

5,983,430

85.0

6,121,859

84.5

(138,429)

(2.3)

Certificates of deposit

1,055,276

15.0

1,126,678

15.5

(71,402)

(6.3)

Total deposits

$ 7,038,706

100.0 %

$ 7,248,537

100.0 %

$ (209,831)

(2.9) %

Borrowings

Total borrowings increased $146.3 million to $166.3 million at June 30, 2026, compared to $20.0 million at March 31, 2026. All outstanding borrowings at June 30, 2026 were with the Federal Home Loan Bank ("FHLB") and mature in the third quarter of 2026.

Stockholders' Equity

Total stockholders' equity decreased $6.0 million, or 0.5%, to $1.11 billion at June 30, 2026, compared to $1.12 billion at March 31, 2026. This decrease was partially due to the repurchase of 372,343 shares of the Company's common stock, for an aggregate purchase price of $10.0 million, under the Company's current share repurchase plan.

The following table summarizes changes in stockholders' equity for the Company for the period indicated:

Quarter Ended

June 30,

2026

(In thousands)

Balance, beginning of period

$ 1,115,691

Net income

17,546

Cash dividends declared on common stock

(10,002)

Common stock repurchased

(10,112)

Other comprehensive loss

(5,000)

Other

1,569

Balance, end of period

$ 1,109,692

The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements to be categorized as "well-capitalized" at June 30, 2026.

The following table summarizes the capital ratios for the Company at the dates indicated:

June 30,

2026

March 31,

2026

Stockholders' equity to total assets

13.2 %

13.1 %

Tangible common equity to tangible assets (1)

9.7

9.6

Common equity tier 1 capital ratio (2)

12.1

12.2

Leverage ratio (2)

10.4

10.3

Tier 1 capital ratio (2)

12.5

Total capital ratio (2)

13.4

13.5

(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.

Allowance for Credit Losses and Provision for Credit Losses

The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.03% at June 30, 2026, compared to 1.06% at March 31, 2026. The decrease in the ACL as a percentage of loans was due primarily to a decrease in the weighted average life of loans in the real estate construction and land development segment and an incremental change in the mix of loans from loans which have a higher ACL percentage to those which have a lower ACL percentage.

During the second quarter of 2026, the Company recorded a $844,000 reversal of provision for credit losses on loans, compared to an $820,000 reversal of provision during the first quarter of 2026. During the second quarter of 2026, the Company recorded a $77,000 reversal of provision for credit losses on unfunded commitments, compared to a $210,000 reversal of provision for credit losses on unfunded commitments during the first quarter of 2026.

The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments ("ACL on Unfunded"), and the related (reversal of) provision for credit losses for the periods indicated:

As of or for the Quarter Ended

June 30, 2026

March 31, 2026

June 30, 2025

ACL on

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

$ 60,551

$ 1,185

$ 61,736

$ 52,584

$ 1,047

$ 53,631

$ 52,160

$ 647

$ 52,807

Initial ACL recorded for

the Merger

—

$ —

9,339

348

$ 9,687

—

$ —

(Reversal of) provision

for credit losses

(844)

(77)

(921)

(820)

(210)

(1,030)

863

956

(Net charge-offs) /

recoveries

(234)

—

(234)

(552)

—

(552)

(494)

—

(494)

Balance, end of period

$ 59,473

$ 1,108

$ 60,581

$ 60,551

$ 1,185

$ 61,736

$ 52,529

$ 740

$ 53,269

Credit Quality

Classified loans (loans rated substandard or worse) decreased $15.9 million from the prior quarter due primarily to loan payoffs during the quarter. The percentage of classified loans to loans receivable decreased to 1.8% at June 30, 2026, compared to 2.1% at March 31, 2026.

The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:

June 30, 2026

March 31, 2026

Balance

% of

Total

Balance

% of

Total

(Dollars in thousands)

Risk Rating:

Pass

$ 5,517,189

96.0 %

$ 5,497,208

96.1 %

Special Mention

125,108

2.2

103,699

1.8

Substandard

105,444

1.8

121,331

2.1

Total

$ 5,747,741

100.0 %

$ 5,722,238

100.0 %

Nonaccrual loans were $15.5 million at June 30, 2026, compared to $15.0 million at March 31, 2026. Two commercial and industrial loan relationships totaling $5.0 million were migrated to nonaccrual during the second quarter of 2026, and both were paid off prior to the end of the quarter.

The following table illustrates changes in nonaccrual loans during the periods indicated:

Quarter Ended

June 30,

2026

March 31,

2026

June 30,

2025

(Dollars in thousands)

Balance, beginning of period

$ 14,958

$ 20,976

$ 4,438

Additions

5,988

3,388

7,922

Net principal payments

(280)

(261)

(2,041)

Payoffs

(5,156)

(7,800)

—

Charge-offs

—

(463)

(454)

Transfer to OREO

—

(741)

—

Return to accrual

—

(141)

—

Balance, end of period

$ 15,510

$ 14,958

$ 9,865

Nonaccrual loans to loans receivable

0.27 %

0.26 %

0.21 %

Liquidity

Total liquidity sources available at June 30, 2026 totaled $3.27 billion. This included on- and off-balance sheet liquidity. The Company has access to FHLB advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at June 30, 2026 represented a coverage ratio of 46.5% of total deposits and 118.9% of estimated uninsured deposits.

The following table summarizes the Company's available liquidity as of the dates indicated:

Quarter Ended

June 30,

2026

March 31,

2026

(Dollars in thousands)

On-balance sheet liquidity

Cash and cash equivalents

$ 204,375

$ 268,143

Unencumbered investment securities available for sale (1)

949,021

978,332

Total on-balance sheet liquidity

$ 1,153,396

$ 1,246,475

Off-balance sheet liquidity

FRB borrowing availability

$ 339,029

$ 341,449

FHLB borrowing availability (2)

1,635,593

1,469,277

Fed funds line borrowing availability with correspondent banks

145,000

Total off-balance sheet liquidity

$ 2,119,622

$ 1,955,726

Total available liquidity

$ 3,273,018

$ 3,202,201

(1)

Investment securities available for sale at fair value.

(2)

Includes FHLB total borrowing availability of $1.80 billion at June 30, 2026 based on pledged assets, however, maximum credit capacity was 45% of the Bank's total assets one quarter in arrears or $3.82 billion.

Net Interest Income and Net Interest Margin

Net interest income increased $5.6 million, or 8.1%, during the second quarter of 2026 compared to the first quarter of 2026 due to a $7.0 million increase in total interest income, offset partially by an increase in interest expense of $1.4 million. The increase in net interest income was primarily due to one additional month of income attributable to the assets and liabilities obtained in the Merger which was completed on January 31, 2026.

Net interest margin increased three basis points to 3.99% during the second quarter of 2026, from 3.96% during the first quarter of 2026. The increase in net interest margin was due primarily to the increase in yield on investments and decreases in the cost of interest bearing deposits.

The yield on interest earning assets increased two basis points to 5.21% for the second quarter of 2026, compared to 5.19% for the first quarter of 2026. The increase was primarily due to an increase in yield on investments of 12 basis points to 3.55% for the second quarter of 2026, compared to 3.43% for the first quarter of 2026.

The yield on loans receivable decreased one basis point to 5.72% during the second quarter of 2026, compared to 5.73% during the first quarter of 2026. The decrease was due primarily to recovery of interest income on nonaccrual loans recognized in the first quarter of 2026 which contributed six basis points to loan yield for the first quarter of 2026 and had no impact in the second quarter of 2026. Loan yield also benefited from the incremental accretion on purchased loans in both the first and second quarter of 2026.

The following table presents the net interest margin and loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods indicated:

Quarter Ended

June 30,

2026

March 31,

2026

June 30,

2025

Net Interest Margin, excluding incremental accretion on purchased loans, annualized:

Net interest margin

3.99 %

3.96 %

3.51 %

Exclude impact from incremental accretion on purchased loans (2)

(0.09) %

(0.01) %

Net interest margin, excluding incremental accretion on purchased

loans (1)

3.90 %

3.87 %

3.50 %

Loan yield, excluding incremental accretion on purchased loans, annualized:

Loan yield

5.72 %

5.73 %

5.50 %

Exclude impact from incremental accretion on purchased loans (2)

(0.12)

(0.01)

Loan yield, excluding incremental accretion on purchased loans (1)

5.60 %

5.61 %

5.49 %

Incremental accretion on purchased loans (1)

$ 1,772

$ 1,623

$ 76

(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the acquisition date. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.

The cost of interest bearing deposits decreased four basis points to 1.67% for the second quarter of 2026, from 1.71% for the first quarter of 2026. This decrease was primarily due to one additional month of interest expense on deposits acquired from Olympic, which had a lower cost of deposits.

Net interest margin increased 48 basis points to 3.99% during the second quarter of 2026, compared to 3.51% for the same period in the prior year. Net interest income increased $19.8 million, or 36.1%, during the second quarter of 2026 compared to the same period in the prior year, due to a combination of an increase in average interest earning assets, which increased substantially as a result of the Merger, and an increase in net interest margin.

The following table provides net interest income information for the periods indicated:

Quarter Ended

June 30, 2026

March 31, 2026

June 30, 2025

Average

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)

$ 5,740,927

$ 81,935

5.72 %

$ 5,412,943

$ 76,445

5.73 %

$ 4,768,558

$ 65,373

5.50 %

Taxable securities

1,635,979

14,464

3.55

1,486,343

12,570

3.43

1,374,770

11,579

3.38

Nontaxable securities (3)

15,439

128

3.33

15,662

129

3.34

15,294

137

3.59

Interest earning deposits

124,969

1,147

3.68

172,723

1,531

3.59

127,687

1,411

4.43

Total interest earning assets

7,517,314

97,674

5.21 %

7,087,671

90,675

5.19 %

6,286,309

78,500

5.01 %

Noninterest earning assets

920,006

847,331

760,634

Total assets

$ 8,437,320

$ 7,935,002

$ 7,046,943

Interest Bearing Liabilities:

Certificates of deposit

$ 1,090,406

$ 8,817

3.24 %

$ 1,064,676

$ 8,814

3.36 %

$ 979,997

$ 9,349

3.83 %

Savings accounts

591,458

348

0.24

540,403

315

0.24

425,703

288

0.27

Interest bearing demand and

money market accounts

3,444,901

12,226

1.42

3,303,007

11,618

1.43

2,770,352

10,513

1.52

Total interest bearing deposits

5,126,765

21,391

1.67

4,908,086

20,747

1.71

4,176,052

20,150

1.94

Junior subordinated debentures

22,455

431

7.70

22,382

430

7.79

22,165

472

8.54

Borrowings

105,131

1,036

3.95

27,111

279

4.17

245,663

2,895

4.73

Total interest bearing

liabilities

5,254,351

22,858

1.74 %

4,957,579

21,456

1.76 %

4,443,880

23,517

2.12 %

Noninterest demand deposits

1,973,038

1,833,284

1,602,987

Other noninterest bearing

liabilities

97,753

95,095

120,268

Stockholders' equity

1,112,178

1,049,044

879,808

Total liabilities and

stockholders' equity

$ 8,437,320

$ 7,935,002

$ 7,046,943

Net interest income and spread

$ 74,816

3.47 %

$ 69,219

3.43 %

$ 54,983

2.89 %

Net interest margin

3.99 %

3.96 %

3.51 %

(1)

Annualized; average balances are calculated using daily balances.

(2)

Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $1.1 million, $0.8 million and $0.9 million for the second quarter of 2026, first quarter of 2026 and second quarter of 2025, respectively, and the incremental accretion on purchased loans of $1.8 million, $1.6 million, and $76,000 for the second quarter of 2026, first quarter of 2026 and second quarter of 2025, respectively.

(3)

Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

Noninterest Income

Noninterest income increased $612,000 to $9.3 million during the second quarter of 2026 from $8.7 million during the first quarter of 2026. The increase was due primarily to increases in service charges and other fees, card revenue and BOLI income due to an additional month of income from the deposit portfolio and bank owned life insurance ("BOLI") acquired from Olympic.

Noninterest income increased $7.8 million during the second quarter of 2026 from the same period in 2025 due primarily to a $6.9 million loss recognized in the second quarter of 2025 resulting from the sale of investment securities as part of the strategic repositioning of the Company's balance sheet, and due to increases in service charges and other fees, card revenue, and BOLI income due to income from the deposit portfolio and BOLI acquired from Olympic.

The following table presents the key components of noninterest income and the change for the periods indicated:

Quarter Ended

Quarter Over

Quarter Change

Prior Year

Quarter Change

June 30,

2026

March 31,

2026

June 30,

2025

(Dollars in thousands)

Service charges and other fees

$ 3,592

$ 3,367

$ 2,932

$ 225

6.7 %

$ 660

22.5 %

Card revenue

2,595

2,103

2,008

492

23.4

587

29.2

Loss on sale of investment securities

(217)

—

(6,854)

(217)

—

6,637

96.8

Interest rate swap fees

—

(16)

(84.2)

BOLI income

1,485

1,119

1,280

366

32.7

205

16.0

Gain on sale of other assets, net

—

(5)

(100.0)

Other income

1,853

2,110

2,127

(257)

(12.2)

(274)

(12.9)

Total noninterest income (loss)

$ 9,311

$ 8,699

$ 1,517

$ 612

7.0 %

$ 7,794

513.8 %

Noninterest Expense

Noninterest expense increased $7.8 million, or 13.7%, to $64.3 million during the second quarter of 2026, compared to $56.6 million in the first quarter of 2026. The increase was primarily due to one additional month of expense related to the Merger, including increases related to compensation and employee benefits from increased headcount, occupancy and equipment expense primarily due to additional rent expense, and additional data processing expense due to an increase in transactional accounts and balances.

Merger related expenses, which consisted of severance expense, professional fees, core conversion costs, and contract termination costs incurred in the second quarter of 2026 were $7.5 million compared to $5.2 million in the first quarter of 2026.

The following table presents merger related expenses included in noninterest expense and the change for the periods indicated:

Quarter Ended

Change

June 30,

2026

March 31,

2026

(Dollars in thousands)

Compensation and employee benefits

$ 1,481

$ 2,733

$ (1,252)

Data processing

4,924

491

4,433

Professional services

128

1,868

(1,740)

Other expense

960

874

Total noninterest expense

$ 7,493

$ 5,178

$ 2,315

Noninterest expense also increased due to the increase in the amortization of intangible assets of $0.9 million, as a result of one additional month of amortization related to the acquisition of Olympic.

Noninterest expense increased $23.2 million, or 56.6%, during the second quarter of 2026 compared to the same period in 2025 due primarily to an increase in expenses related to the Merger and the addition of Olympic operations.

The following table presents the key components of noninterest expense and the change for the periods indicated:

Quarter Ended

Quarter Over

Quarter Change

Prior Year

Quarter Change

June 30,

2026

March 31,

2026

June 30,

2025

(Dollars in thousands)

Compensation and employee benefits

$ 35,769

$ 33,972

$ 25,467

$ 1,797

5.3 %

$ 10,302

40.5 %

Occupancy and equipment

6,014

5,330

4,840

684

12.8

1,174

24.3

Data processing

10,218

5,093

3,666

5,125

100.6

6,552

178.7

Marketing

437

383

336

14.1

101

30.1

Professional services

939

2,842

1,122

(1,903)

(67.0)

(183)

(16.3)

State/municipal business and use taxes

1,801

1,674

1,205

127

7.6

596

49.5

Federal deposit insurance premium

881

1,037

810

(156)

(15.0)

8.8

Other real estate owned, net

—

1000.0

—

Amortization of intangible assets

2,957

2,058

302

899

43.7

2,655

879.1

Other expense

5,264

4,158

3,337

1,106

26.6

1,927

57.7

Total noninterest expense

$ 64,324

$ 56,551

$ 41,085

$ 7,773

13.7 %

$ 23,239

56.6 %

Income Tax Expense

Income tax expense decreased $272,000 in the second quarter of 2026, compared to the first quarter of 2026 due to lower pre-tax income during the second quarter of 2026.

Income tax expense increased $934,000 in the second quarter of 2026, compared to the same period in 2025 due primarily to higher pre-tax income during the second quarter of 2026.

The following table presents the income tax expense and related metrics and the change for the periods indicated:

Quarter Ended

Change

June 30,

2026

March 31,

2026

June 30,

2025

Quarter Over

Quarter

Prior Year

Quarter

(Dollars in thousands)

Income before income taxes

$ 20,724

$ 22,397

$ 14,459

$ (1,673)

$ 6,265

Income tax expense

$ 3,178

$ 3,450

$ 2,244

$ (272)

$ 934

Effective income tax rate

15.3 %

15.4 %

15.5 %

(0.1) %

(0.2) %

Dividends

On July 22, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend is payable on August 19, 2026 to shareholders of record as of the close of business on August 5, 2026.

Earnings Conference Call

The Company will hold a telephone conference call to discuss second quarter of 2026 earnings on Thursday, July 23, 2026 at 9:00 a.m. Pacific time. Participants may register for the call at the following link: https://registrations.events/direct/Q4I5378922. To access the call via telephone, please dial (888) 500-3691 -- access code 53789 a few minutes prior to 9:00 a.m. Pacific time. The conference call will be recorded and will be available for replay through August 6, 2026 at the following link: https://registrations.events/direct/Q4I5378922

About Heritage Financial Corporation

Heritage Financial Corporation (the "Company") is an Olympia, Washington-based bank holding company for Heritage Bank, a full-service commercial bank and its sole wholly-owned banking subsidiary. Heritage Bank has a network of branches and loan production offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington and the Kitsap Bank name at certain branches acquired through the acquisition of Olympic Bancorp, Inc. The Company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA." More information about the Company can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.

Forward-Looking Statements

This press release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets, including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages and a potential recession or slowed economic growth; changes in the interest rate environment, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System and executive orders in response thereto; previous and potential future disruptions, security breaches, insider fraud, cybersecurity incidents or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax laws, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; effects on the U.S. economy resulting from actions taken by the federal government, including the threat or implementation of tariffs, immigration enforcement and changes in foreign policy; the effects of acts of war or terrorism, foreign relations, military conflicts, including the wars in Iran and Ukraine, ongoing conflicts in the Middle East, and other international military conflicts that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, affect global supply chains, increase the volatility of financial markets, and other matters beyond our control; effects of other external events on our business and the businesses of our clients; credit and interest rate risks associated with our business, including our customers' borrowing, repayment, and deposit practices; fluctuations in deposits and the concentration of large deposits from certain customers, who have deposit balances above current FDIC insurance limits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; fluctuations in the value of our investment securities; credit risks and risks from concentrations (including by type of geographic area, collateral and industry) within our loan portfolio; the effectiveness of our risk management framework; rapid technological changes implemented by us and other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; increased competition in the financial services industry from non-banks such as credit unions and financial technology companies, including digital asset service providers; our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action, damage our reputation or otherwise materially harm our business or customers; our ability to implement our organic and acquisition growth strategies, including the recent acquisition of Olympic, and our ability to successfully integrate Olympic's customers and operations following the acquisition; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject, including in connection with prior acquisitions; potential impairment to the goodwill we recorded in connection with our past acquisitions, including as a result of the recent acquisition of Olympic; loss of, or inability to attract, key personnel; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire, including as a result of the recent acquisition of Olympic, into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; the extensive regulatory framework that applies to us; the overall health of local and national real estate markets; the level of nonperforming assets on our balance sheet; risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar; changes in consumer spending, borrowing and saving habits; the availability of future equity and debt issuances and other capital raising opportunities on favorable terms; our success at managing and responding to the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the "SEC") which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. Forward-looking statements speak only as of the date they are made, and we do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except shares)

June 30,

2026

March 31,

2026

December 31,

2025

Assets

Cash on hand and in banks

$ 102,555

$ 98,263

$ 52,587

Interest earning deposits

101,820

169,880

180,502

Cash and cash equivalents

204,375

268,143

233,089

Investment securities available for sale, at fair value (amortized cost of

$1,020,125, $1,043,442 and $647,505, respectively)

971,437

1,001,148

607,522

Investment securities held to maturity, at amortized cost (fair value of

$607,782, $617,490 and $625,287, respectively)

661,839

668,263

674,107

Total investment securities

1,633,276

1,669,411

1,281,629

Loans receivable

5,747,741

5,722,238

4,783,266

Allowance for credit losses on loans

(59,473)

(60,551)

(52,584)

Loans receivable, net

5,688,268

5,661,687

4,730,682

Other real estate owned

755

—

Premises and equipment, net

98,034

100,509

74,690

Federal Home Loan Bank stock, at cost

12,653

6,072

5,163

BOLI

146,350

144,865

105,974

Accrued interest receivable

23,056

24,278

19,280

Prepaid expenses and other assets

297,501

293,429

273,925

Other intangible assets, net

47,269

50,226

1,979

Goodwill

279,029

240,939

Total assets

$ 8,430,566

$ 8,498,404

$ 6,967,350

Liabilities and Stockholders' Equity

Non-interest bearing deposits

$ 1,972,702

$ 2,066,383

$ 1,597,650

Interest bearing deposits

5,066,004

5,182,154

4,322,549

Total deposits

7,038,706

7,248,537

5,920,199

Borrowings

166,250

20,000

Junior subordinated debentures

22,497

22,424

22,350

Accrued expenses and other liabilities

93,421

91,752

83,297

Total liabilities

7,320,874

7,382,713

6,045,846

Common stock

707,889

716,432

531,100

Retained earnings

439,799

432,255

421,619

Accumulated other comprehensive loss, net

(37,996)

(32,996)

(31,215)

Total stockholders' equity

1,109,692

1,115,691

921,504

Total liabilities and stockholders' equity

$ 8,430,566

$ 8,498,404

$ 6,967,350

Shares outstanding

40,906,122

41,249,873

33,963,500

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share amounts)

Quarter Ended

Six Months Ended

June 30,

2026

March 31,

2026

June 30,

2025

June 30,

2026

June 30,

2025

Interest Income

Interest and fees on loans

$ 81,935

$ 76,445

$ 65,373

$ 158,380

$ 129,809

Taxable interest on investment securities

14,464

12,570

11,579

27,034

23,318

Nontaxable interest on investment securities

128

129

137

257

276

Interest on interest earning deposits

1,147

1,531

1,411

2,678

2,463

Total interest income

97,674

90,675

78,500

188,349

155,866

Interest Expense

Deposits

21,391

20,747

20,150

42,138

39,639

Junior subordinated debentures

431

430

472

861

943

Borrowings

1,036

279

2,895

1,315

6,611

Total interest expense

22,858

21,456

23,517

44,314

47,193

Net interest income

74,816

69,219

54,983

144,035

108,673

(Reversal of) provision for credit losses

(921)

(1,030)

956

(1,951)

1,007

Net interest income after (reversal of)

provision for credit losses

75,737

70,249

54,027

145,986

107,666

Noninterest Income

Service charges and other fees

3,592

3,367

2,932

6,959

5,907

Card revenue

2,595

2,103

2,008

4,698

3,741

Loss on sale of investment securities, net

(217)

—

(6,854)

(217)

(10,741)

Interest rate swap fees

—

BOLI income

1,485

1,119

1,280

2,604

2,198

Gain on sale of other assets, net

—

Other income

1,853

2,110

2,127

3,963

4,288

Total noninterest income (loss)

9,311

8,699

1,517

18,010

5,420

Noninterest Expense

Compensation and employee benefits

35,769

33,972

25,467

69,741

51,266

Occupancy and equipment

6,014

5,330

4,840

11,344

9,766

Data processing

10,218

5,093

3,666

15,311

7,563

Marketing

437

383

336

820

671

Professional services

939

2,842

1,122

3,781

1,856

State/municipal business and use taxes

1,801

1,674

1,205

3,475

2,425

Federal deposit insurance premium

881

1,037

810

1,918

1,622

Other real estate owned, net

—

Amortization of intangible assets

2,957

2,058

302

5,015

605

Other expense

5,264

4,158

3,337

9,422

6,694

Total noninterest expense

64,324

56,551

41,085

120,875

82,468

Income before income taxes

20,724

22,397

14,459

43,121

30,618

Income tax expense

3,178

3,450

2,244

6,628

4,492

Net income

$ 17,546

$ 18,947

$ 12,215

$ 36,493

$ 26,126

Basic earnings per share

$ 0.42

$ 0.49

$ 0.36

$ 0.91

$ 0.77

Diluted earnings per share

$ 0.42

$ 0.48

$ 0.36

$ 0.90

$ 0.76

Dividends declared per share

$ 0.24

$ 0.48

Average shares outstanding - basic

41,079,781

38,683,375

34,028,592

39,888,198

34,037,067

Average shares outstanding - diluted

41,541,763

39,104,569

34,446,710

40,364,364

34,512,260

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands)

Average Balances, Yields, and Rates Paid:

Six Months Ended June 30,

2026

2025

Average

Balance

Interest

Earned/

Paid

Average

Yield/

Rate (1)

Average

Balance

Interest

Earned/

Paid

Average

Yield/

Rate (1)

Interest Earning Assets:

Loans receivable (2)(3)

$ 5,577,841

$ 158,380

5.73 %

$ 4,781,167

$ 129,809

5.48 %

Taxable securities

1,561,574

27,034

3.49

1,401,226

23,318

3.36

Nontaxable securities (3)

15,550

257

3.33

15,489

276

3.59

Interest earning deposits

148,715

2,678

3.63

111,990

2,463

4.44

Total interest earning assets

7,303,680

188,349

5.20 %

6,309,872

155,866

4.98 %

Noninterest earning assets

883,869

765,058

Total assets

$ 8,187,549

$ 7,074,930

Interest Bearing Liabilities:

Certificates of deposit

$ 1,077,612

$ 17,631

3.30 %

$ 980,166

$ 19,019

3.91 %

Savings accounts

566,072

663

0.24

426,010

581

0.28

Interest bearing demand and money market accounts

3,374,345

23,844

1.42

2,738,197

20,039

1.48

Total interest bearing deposits

5,018,029

42,138

1.69

4,144,373

39,639

1.93

Junior subordinated debentures

22,419

861

7.74

22,126

943

8.59

Borrowings

66,337

1,315

4.00

282,768

6,611

4.71

Total interest bearing liabilities

5,106,785

44,314

1.75 %

4,449,267

47,193

2.14 %

Noninterest demand deposits

1,903,547

1,617,050

Other noninterest bearing liabilities

96,432

135,358

Stockholders' equity

1,080,785

873,255

Total liabilities and stockholders' equity

$ 8,187,549

$ 7,074,930

Net interest income and spread

$ 144,035

3.45 %

$ 108,673

2.84 %

Net interest margin

3.98 %

3.47 %

(1)

Annualized; average balances are calculated using daily balances.

(2)

Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $1.9 million and $1.7 million for the six months ended June 30, 2026 and 2025, respectively, and incremental accretion on purchased loans of $3.4 million and $229,000, for the six months ended June 30, 2026 and 2025, respectively.

(3)

Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands)

Nonperforming Assets and Credit Quality Metrics:

Quarter Ended

Six Months Ended

June 30,

2026

March 31,

2026

June 30,

2025

June 30,

2026

June 30,

2025

Allowance for Credit Losses on Loans:

Balance, beginning of period

$ 60,551

$ 52,584

$ 52,160

$ 52,584

$ 52,468

Initial ACL recorded for PSL and PCD

loans acquired during the period

—

9,339

—

9,339

—

(Reversal of) provision for credit

losses on loans

(844)

(820)

863

(1,664)

854

Charge-offs:

Commercial business

(180)

(400)

(454)

(580)

(676)

Residential real estate

—

(64)

—

(64)

—

Consumer

(89)

(119)

(104)

(208)

(258)

Total charge-offs

(269)

(583)

(558)

(852)

(934)

Recoveries:

Commercial business

Residential real estate

—

Consumer

Total recoveries

141

Net (charge-offs) recoveries

(234)

(552)

(494)

(786)

(793)

Balance, end of period

$ 59,473

$ 60,551

$ 52,529

$ 59,473

$ 52,529

Net charge-offs on loans to average

loans receivable annualized

0.02 %

0.04 %

0.03 %

June 30,

2026

March 31,

2026

December 31,

2025

Nonperforming Assets:

Nonaccrual loans:

Commercial business

$ 7,437

$ 7,454

$ 6,886

Residential real estate

1,338

583

1,196

Real estate construction and land development

6,420

6,514

12,408

Consumer

315

407

486

Total nonaccrual loans

15,510

14,958

20,976

Accruing loans past due 90 days or more

—

194

Total nonperforming loans

15,510

15,025

21,170

Other real estate owned

755

—

Nonperforming assets

$ 16,265

$ 15,780

$ 21,170

ACL on loans to:

Loans receivable

1.03 %

1.06 %

1.10 %

Nonaccrual loans

383.45 %

404.81 %

250.69 %

Nonaccrual loans to loans receivable

0.27 %

0.26 %

0.44 %

Nonperforming loans to loans receivable

0.27 %

0.26 %

0.44 %

Nonperforming assets to total assets

0.19 %

0.30 %

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)

Quarter Ended

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Earnings:

Net interest income

$ 74,816

$ 69,219

$ 58,361

$ 57,371

$ 54,983

(Reversal of) provision for credit losses

(921)

(1,030)

(814)

1,775

956

Noninterest income

9,311

8,699

7,987

8,325

1,517

Noninterest expense

64,324

56,551

41,483

41,615

41,085

Net income

17,546

18,947

22,237

19,169

12,215

Basic earnings per share

$ 0.42

$ 0.49

$ 0.66

$ 0.56

$ 0.36

Diluted earnings per share

$ 0.42

$ 0.48

$ 0.65

$ 0.55

$ 0.36

Adjusted diluted earnings per share (1)

$ 0.57

$ 0.59

$ 0.66

$ 0.56

$ 0.53

Average Balances:

Loans receivable

$ 5,740,927

$ 5,412,943

$ 4,770,300

$ 4,762,648

$ 4,768,558

Total investment securities

1,651,418

1,502,005

1,301,526

1,329,616

1,390,064

Total interest earning assets

7,517,314

7,087,671

6,223,303

6,258,446

6,286,309

Total assets

8,437,320

7,935,002

6,954,110

7,006,140

7,046,943

Total interest bearing deposits

5,126,765

4,908,086

4,250,589

4,217,041

4,176,052

Total noninterest demand deposits

1,973,038

1,833,284

1,635,539

1,625,945

1,602,987

Stockholders' equity

1,112,178

1,049,044

911,454

892,280

879,808

Financial Ratios:

Return on average assets (2)

0.83 %

0.97 %

1.27 %

1.09 %

0.70 %

Adjusted return on average assets (1)(2)

1.12 %

1.18 %

1.29 %

1.11 %

1.03 %

Return on average common equity (2)

6.33

7.32

9.68

8.52

5.57

Return on average tangible common

equity (1)(2)

10.17

11.14

13.33

11.86

7.85

Adjusted return on average tangible

common equity (1)(2)

13.29

13.36

13.51

12.16

11.59

Efficiency ratio

76.5

72.6

62.5

63.3

72.7

Adjusted efficiency ratio (1)

63.9

63.3

61.5

61.9

64.4

Noninterest expense to average total

assets (2)

3.06

2.89

2.37

2.36

2.34

Adjusted noninterest expense to

average total assets (1)(2)

2.56

2.52

2.33

2.30

2.32

Net interest spread (2)

3.47

3.43

3.15

3.03

2.89

Net interest margin (2)

3.99

3.96

3.72

3.64

3.51

(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Annualized.

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)

As of or for the Quarter Ended

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Select Balance Sheet:

Total assets

$ 8,430,566

$ 8,498,404

$ 6,967,350

$ 7,011,879

$ 7,070,641

Loans receivable

5,747,741

5,722,238

4,783,266

4,769,160

4,774,855

Total investment securities

1,633,276

1,669,411

1,281,629

1,312,857

1,346,274

Total deposits

7,038,706

7,248,537

5,920,199

5,857,464

5,784,413

Noninterest demand deposits

1,972,702

2,066,383

1,597,650

1,617,909

1,584,231

Stockholders' equity

1,109,692

1,115,691

921,504

904,064

888,212

Financial Measures:

Book value per share

$ 27.13

$ 27.05

$ 27.13

$ 26.62

$ 26.16

Tangible book value per share (1)

19.15

19.07

19.98

19.46

18.99

Stockholders' equity to total assets

13.2 %

13.1 %

13.2 %

12.9 %

12.6 %

Tangible common equity to tangible

assets (1)

9.7

9.6

10.1

9.8

9.4

Loans to deposits ratio

81.7

78.9

80.8

81.4

82.5

Regulatory Capital Ratios: (2)

Common equity tier 1 capital ratio

12.1 %

12.2 %

12.7 %

12.4 %

12.2 %

Leverage ratio

10.4

10.3

10.8

10.5

10.3

Tier 1 capital ratio

12.5

13.1

12.8

12.6

Total capital ratio

13.4

13.5

14.1

13.8

13.6

Credit Quality Metrics:

ACL on loans to:

Loans receivable

1.03 %

1.06 %

1.10 %

1.13 %

1.10 %

Nonaccrual loans

383.4

404.8

250.7

306.5

532.5

Nonaccrual loans to loans receivable

0.27

0.26

0.44

0.37

0.21

Nonperforming loans to loans

receivable

0.27

0.26

0.44

0.39

Nonperforming assets to total assets

0.19

0.30

0.26

Net charge-offs on loans to average

loans receivable (3)

0.02

0.04

0.01

0.04

Criticized Loans by Credit Quality Rating:

Special mention

$ 125,108

$ 103,699

$ 71,122

$ 100,160

$ 114,146

Substandard

105,444

121,331

116,823

94,377

99,715

Other Metrics:

Number of branches

Deposits per branch

$ 106,647

$ 111,516

$ 118,404

$ 117,149

$ 115,688

Average number of full-time equivalent

employees

976

905

742

749

745

Average assets per full-time

equivalent employee

8,645

8,768

9,372

9,354

9,459

(1)

See Non-GAAP Financial Measures section herein.

(2)

Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.

(3)

Annualized.

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

This earnings release contains certain financial measures not presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP financial measures used in this earnings release to the comparable GAAP financial measures are presented below.

The Company believes that presenting the adjusted diluted earnings per share provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Diluted Earnings per Share and Adjusted Diluted Earnings per Share:

Net income (GAAP)

$ 17,546

$ 18,947

$ 22,237

$ 19,169

$ 12,215

Exclude loss on sale of

investment securities, net

217

—

6,854

Exclude merger related costs

7,493

5,178

385

635

—

Exclude gain on sale of premises

and equipment

—

(5)

Exclude tax effect of adjustment

(1,619)

(1,087)

(81)

(133)

(1,438)

Exclude tax expense related to

BOLI restructuring

—

515

Adjusted net income (non-GAAP)

$ 23,637

$ 23,038

$ 22,541

$ 19,671

$ 18,141

Average number of diluted shares

outstanding

41,541,763

39,104,569

34,405,793

34,413,386

34,446,710

Diluted earnings per share (GAAP)

$ 0.42

$ 0.48

$ 0.65

$ 0.55

$ 0.36

Adjusted diluted earnings per share

(non-GAAP)

$ 0.57

$ 0.59

$ 0.66

$ 0.56

$ 0.53

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

The Company believes that presenting an adjusted return on average assets ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Adjusted Return on Average Assets ("ROAA"):

Net income (GAAP)

$ 17,546

$ 18,947

$ 22,237

$ 19,169

$ 12,215

Exclude (gain) loss on sale of

investment securities, net

217

—

6,854

Exclude merger related costs

7,493

5,178

385

635

—

Exclude gain on sale of premise

and equipment

—

(5)

Exclude tax effect of adjustments

(1,619)

(1,087)

(81)

(133)

(1,438)

Exclude tax expense related to

BOLI restructuring

—

515

Adjusted net income (non-GAAP)

$ 23,637

$ 23,038

$ 22,541

$ 19,671

$ 18,141

Average ("Avg") total assets

$ 8,437,320

$ 7,935,002

$ 6,954,110

$ 7,006,140

$ 7,046,943

ROAA, annualized (GAAP)

0.83 %

0.97 %

1.27 %

1.09 %

0.70 %

Adjusted ROAA, annualized (non-

GAAP)

1.12 %

1.18 %

1.29 %

1.11 %

1.03 %

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company's capital levels.

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:

Total stockholders' equity (GAAP)

$ 1,109,692

$ 1,115,691

$ 921,504

$ 904,064

$ 888,212

Exclude intangible assets

(326,298)

(329,255)

(242,918)

(243,203)

(243,487)

Tangible common equity (non-GAAP)

$ 783,394

$ 786,436

$ 678,586

$ 660,861

$ 644,725

Total assets (GAAP)

$ 8,430,566

$ 8,498,404

$ 6,967,350

$ 7,011,879

$ 7,070,641

Exclude intangible assets

(326,298)

(329,255)

(242,918)

(243,203)

(243,487)

Tangible assets (non-GAAP)

$ 8,104,268

$ 8,169,149

$ 6,724,432

$ 6,768,676

$ 6,827,154

Stockholders' equity to total assets

(GAAP)

13.2 %

13.1 %

13.2 %

12.9 %

12.6 %

Tangible common equity to tangible

assets (non-GAAP)

9.7 %

9.6 %

10.1 %

9.8 %

9.4 %

Shares outstanding

40,906,122

41,249,873

33,963,500

33,956,738

33,953,194

Book value per share (GAAP)

$ 27.13

$ 27.05

$ 27.13

$ 26.62

$ 26.16

Tangible book value per share (non-

GAAP)

$ 19.15

$ 19.07

$ 19.98

$ 19.46

$ 18.99

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.

Quarter Ended

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Return on Average Tangible Common Equity, annualized:

Net income (GAAP)

$ 17,546

$ 18,947

$ 22,237

$ 19,169

$ 12,215

Add amortization of intangible

assets

2,957

2,058

285

284

302

Exclude tax effect of adjustment

(621)

(432)

(60)

(63)

Tangible net income (non-GAAP)

$ 19,882

$ 20,573

$ 22,462

$ 19,393

$ 12,454

Tangible net income (non-GAAP)

$ 19,882

$ 20,573

$ 22,462

$ 19,393

$ 12,454

Exclude loss on sale of

investment securities, net

217

—

6,854

Exclude merger related costs

7,493

5,178

385

635

—

Exclude gain on sale of premises

and equipment

—

(5)

Exclude tax effect of adjustment

(1,619)

(1,087)

(81)

(133)

(1,438)

Exclude tax expense related to

BOLI restructuring

—

515

Adjusted tangible net income (non-

GAAP)

$ 25,973

$ 24,664

$ 22,766

$ 19,895

$ 18,380

Average stockholders' equity (GAAP)

$ 1,112,178

$ 1,049,044

$ 911,454

$ 892,280

$ 879,808

Exclude average intangible assets

(328,166)

(300,391)

(243,069)

(243,350)

(243,651)

Average tangible common

stockholders' equity (non-GAAP)

$ 784,012

$ 748,653

$ 668,385

$ 648,930

$ 636,157

Return on average common equity,

annualized (GAAP)

6.33 %

7.32 %

9.68 %

8.52 %

5.57 %

Return on average tangible common equity,

annualized (non-GAAP)

10.17 %

11.14 %

13.33 %

11.86 %

7.85 %

Adjusted return on average tangible

common equity, annualized (non-

GAAP)

13.29 %

13.36 %

13.51 %

12.16 %

11.59 %

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

The Company believes that presenting an adjusted efficiency ratio and adjusted noninterest expense to average assets ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.

Quarter Ended

June 30,

2026

March 31,

2026

December 31,

2025

September 30,

2025

June 30,

2025

Adjusted Efficiency Ratio and Adjusted Noninterest Expense to Average Assets Ratio:

Total noninterest expense (GAAP)

$ 64,324

$ 56,551

$ 41,483

$ 41,615

$ 41,085

Exclude merger related costs

7,493

5,178

385

635

—

Exclude amortization of intangible

assets

2,957

2,058

285

284

302

Adjusted noninterest expense (non-

GAAP)

$ 53,874

$ 49,315

$ 40,813

$ 40,696

$ 40,783

Net interest income (GAAP)

$ 74,816

$ 69,219

$ 58,361

$ 57,371

$ 54,983

Total noninterest income (GAAP)

$ 9,311

$ 8,699

$ 7,987

$ 8,325

$ 1,517

Exclude loss on sale of

investment securities, net

217

—

6,854

Exclude gain on sale of premises

and equipment

—

(5)

Adjusted total noninterest income

(non-GAAP)

$ 9,528

$ 8,699

$ 7,987

$ 8,325

$ 8,366

Efficiency ratio (GAAP)

76.5 %

72.6 %

62.5 %

63.3 %

72.7 %

Adjusted efficiency ratio (non-GAAP)

63.9 %

63.3 %

61.5 %

61.9 %

64.4 %

Average Total assets

$ 8,437,320

$ 7,935,002

$ 6,954,110

$ 7,006,140

$ 7,046,943

Noninterest expense to average

assets (GAAP) (1)

3.06 %

2.89 %

2.37 %

2.36 %

2.34 %

Adjusted noninterest expense to

average assets (non-GAAP) (1)

2.56 %

2.52 %

2.33 %

2.30 %

2.32 %

(1) Annualized.

HERITAGE FINANCIAL CORPORATION

NON-GAAP FINANCIAL MEASURES (Unaudited)

(Dollars in thousands, except per share amounts)

The Company believes presenting loan yield and net interest margin excluding the effect of discount accretion on purchased loans is useful in assessing the impact of acquisition accounting on loan yield as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off our balance sheet.

Three Months Ended

June 30,

2026

March 31,

2026

June 30,

2025

(Dollar amounts in thousands)

Loan yield, excluding incremental accretion on purchased loans, annualized:

Interest and fees on loans (GAAP)

$ 81,935

$ 76,445

$ 65,373

Exclude incremental accretion on purchased loans

1,772

1,623

Adjusted interest and fees on loans (non-GAAP)

$ 80,163

$ 74,822

$ 65,297

Average loans receivable, net (GAAP)

$ 5,740,927

$ 5,412,943

$ 4,768,558

Loan yield, annualized (GAAP)

5.72 %

5.73 %

5.50 %

Loan yield, excluding incremental accretion on purchased loans,

annualized (non-GAAP)

5.60 %

5.61 %

5.49 %

Net Interest Margin, excluding incremental accretion on purchased loans, annualized:

Net interest income before provision (GAAP)

$ 74,816

$ 69,219

$ 54,983

Exclude incremental accretion on purchased loans

1,772

1,623

Adjusted net interest income before provision (non-GAAP)

$ 73,044

$ 67,596

$ 54,907

Average Interest earning assets (GAAP)

$ 7,517,314

$ 7,087,671

$ 6,286,309

Net interest margin (GAAP)

3.99 %

3.96 %

3.51 %

Net interest margin, excluding incremental accretion on purchased loans

(non-GAAP)

3.90 %

3.87 %

3.50 %

SOURCE Heritage Financial Corporation