Heritage Financial Announces Third Quarter 2025 Results and Declares Regular Cash Dividend of $0.24 Per Share

Rhea-AI Summary

Heritage Financial (Nasdaq: HFWA) reported Q3 2025 net income of $19.2M ($0.55 diluted EPS), up from $11.4M ($0.33) in Q3 2024 and $12.2M in Q2 2025. The company declared a $0.24 per share regular cash dividend on October 22, 2025. Deposits rose to $5.86B and loans totaled $4.77B at September 30, 2025. Borrowings fell materially year-to-date as core deposit growth reduced reliance on FHLB borrowings. Heritage also announced a definitive agreement to acquire Olympic Bancorp, with the transaction expected to close in Q1 2026.

Credit metrics showed an increase in nonaccrual loans and a modest rise in the allowance for credit losses; capital ratios remained above regulatory "well-capitalized" thresholds.

Positive

• Net income +68% YoY to $19.2M
• Diluted EPS +67% YoY to $0.55
• Declared regular dividend of $0.24 per share
• Total deposits reached $5.86B at 9/30/2025
• Borrowings reduced by $245M YTD (64%)
• Definitive agreement to acquire Olympic Bancorp (closing Q1 2026)

Negative

• Nonaccrual loans increased by $13.3M QoQ to $17.6M
• Provision for credit losses on loans rose to $1.6M (Q3 2025)

Insights

Senior Bank Analyst

Strong quarter: rising earnings, wider margin, deposit growth and a declared dividend; acquisition set to close in Q1 2026.

Net income rose to $19.2 million and diluted EPS to $0.55, driven by higher net interest income and a net interest margin of 3.64%. Deposits increased by $73.1 million (1.3%), with noninterest demand balances up and a reduction in borrowings of $245 million year-to-date, which together materially supported margin expansion.

Credit metrics show small but notable changes: the allowance for loan losses rose to 1.13% of loans and nonaccrual loans increased to $17.6 million, largely from two residential construction loans. Capital ratios remain above regulatory thresholds and the company declared a regular cash dividend of $0.24 per share.

Key dependencies and near-term monitors include successful closing of the Olympic Bancorp acquisition in Q1 2026, trends in construction-related credit given recent nonaccrual additions, and whether deposit growth and lower funding costs persist. Watch quarterly net interest margin, ACL as a percent of loans, and regulatory filings in the next quarter for confirmation of estimated capital ratios.

Third Quarter 2025 Highlights

• Net income was $19.2 million, or $0.55 per diluted share, compared to $12.2 million, or $0.36 per diluted share, for the second quarter of 2025.
• Deposits increased $73.1 million, or 1.3% (5.0% annualized), with noninterest demand deposits increasing 2.1% (8.4% annualized), from the second quarter of 2025.
• Net interest income increased $2.4 million, or 4.3% (17.2% annualized) from the second quarter of 2025.
• Net interest margin increased to 3.64%, an increase of 13 basis points from 3.51% for the second quarter of 2025.
• Yield on loans increased to 5.53%, from 5.50% for the second quarter of 2025.
• Cost of interest bearing deposits decreased to 1.89%, from 1.94% for the second quarter of 2025.
• Declared a regular cash dividend of $0.24 per share on October 22, 2025.
• Heritage announced a definitive agreement to acquire Olympic Bancorp, Inc. on September 25, 2025.

OLYMPIA, Wash., Oct. 23, 2025 /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 $19.2 million for the third quarter of 2025, compared to $12.2 million for the second quarter of 2025 and $11.4 million for the third quarter of 2024. Diluted earnings per share were $0.55 for the third quarter of 2025, compared to $0.36 for the second quarter of 2025 and $0.33 for the third quarter of 2024.

Bryan McDonald, Chief Executive Officer of the Company, commented, "We are pleased with the continued growth in core earnings driven by our margin expansion as loan yields continue to expand and our deposits costs are decreasing. Net interest income increased 8.3% from the same quarter of 2024. The growth in core deposits has allowed us to reduce borrowings by $245 million, or 64%, in 2025 year to date, which further strengthened our net interest margin in the quarter."

Mr. McDonald continued, "Of course, we are excited about the pending acquisition of Olympic Bancorp and its subsidiary, Kitsap Bank. This acquisition will further enhance the strength of our balance sheet and improve our profitability. We look forward to closing the transaction in the first quarter of 2026."

Financial Highlights

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

	As of or for the Quarter Ended
	September 30, 2025		June 30, 2025		September 30, 2024
	(Dollars in thousands, except per share amounts)
Net income	$           19,169		$           12,215		$           11,423
Diluted earnings per share	$               0.55		$               0.36		$               0.33
Adjusted diluted earnings per share (1)	$               0.56		$               0.53		$               0.45
Return on average assets(2)	1.09 %		0.70 %		0.63 %
Return on average common equity(2)	8.52		5.57		5.30
Return on average tangible common equity(1)(2)	11.86		7.85		7.62
Adjusted return on average tangible common equity(1)(2)	12.16		11.59		10.42
Net interest margin(2)	3.64		3.51		3.30
Cost of total deposits(2)	1.37		1.40		1.42
Efficiency ratio	63.3		72.7		71.7
Adjusted efficiency ratio(1)	62.4		64.9		65.2
Noninterest expense to average total assets(2)	2.36		2.34		2.18
Total assets	$     7,011,879		$     7,070,641		$     7,153,363
Loans receivable	4,769,160		4,774,855		4,679,479
Total deposits	5,857,464		5,784,413		5,708,492
Loan to deposit ratio(3)	81.4 %		82.5 %		82.0 %
Book value per share	$            26.62		$            26.16		$            25.61
Tangible book value per share(1)	19.46		18.99		18.45

(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.

Balance Sheet

Total investment securities decreased $33.4 million, or 2.5%, to $1.31 billion at September 30, 2025 from $1.35 billion at June 30, 2025. Investment maturities and repayments totaled $38.5 million during the third quarter of 2025. The decrease was partially offset by a $4.9 million decrease in unrealized losses on available for sale securities.

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

	September 30, 2025				June 30, 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	$         11,642		0.9 %		$         11,510		0.9 %		$           132		1.1 %
Municipal securities	51,197		3.9		50,215		3.7		982		2.0
Residential CMO and MBS(1)	298,737		22.8		317,214		23.6		(18,477)		(5.8)
Commercial CMO and MBS(1)	255,995		19.5		260,720		19.3		(4,725)		(1.8)
Corporate obligations	7,019		0.5		10,010		0.7		(2,991)		(29.9)
Other asset-backed securities	6,641		0.5		6,783		0.5		(142)		(2.1)
Total	$       631,231		48.1 %		$       656,452		48.7 %		$   (25,221)		(3.8) %
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities	$       151,297		11.5 %		$       151,274		11.2 %		$             23		— %
Residential CMO and MBS(1)	224,654		17.1		232,244		17.3		(7,590)		(3.3)
Commercial CMO and MBS(1)	305,675		23.3		306,304		22.8		(629)		(0.2)
Total	$       681,626		51.9 %		$       689,822		51.3 %		$     (8,196)		(1.2) %
Total investment securities	$   1,312,857		100.0 %		$   1,346,274		100.0 %		$   (33,417)		(2.5) %

(1)	U.S. government agency and government-sponsored enterprise CMO and MBS

Loans receivable decreased $5.7 million, or 0.1%, during the third quarter of 2025 due primarily to an elevated level of prepaid and closed loans, offset partially by new loan production for the quarter. New loans funded increased during the third quarter of 2025 to $174.5 million, compared to $139.9 million during the second quarter of 2025. New loan commitments increased during the third quarter of 2025 to $341.2 million, compared to $267.6 million during the second quarter of 2025. Loan prepayments increased to $75.6 million during the quarter, compared to $58.9 million during the prior quarter. Loan payoffs increased to $55.8 million, compared to $51.0 million in the prior quarter.

Commercial and industrial loans decreased $12.0 million, or 1.4%, during the third quarter of 2025, due primarily to pay downs on outstanding balances, partially offset by new loan production of $65.6 million. Owner-occupied commercial real estate ("CRE") loans increased $7.8 million, or 0.8%, during the third quarter of 2025, due primarily to new loan production of $24.8 million, partially offset by pay downs on outstanding balances. Non-owner occupied CRE loans decreased $1.6 million, or 0.1%, during the quarter, due primarily to loan payoffs, partially offset by new loan production of $50.7 million. Residential real estate loans decreased by $9.1 million, or 2.4%, during the quarter due to loan payoffs. Residential construction loans increased by $12.4 million, or 15.8% during the quarter due primarily to new loan production. Commercial and multifamily construction loans decreased $4.1 million, or 1.1%, during the quarter due primarily to loan payoffs.

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

	September 30, 2025				June 30, 2025				Change
	Balance		% of Total		Balance		% of Total		$		%
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$       819,076		17.2 %		$       831,096		17.4 %		$        (12,020)		(1.4) %
Owner-occupied CRE	1,022,727		21.4		1,014,891		21.3		7,836		0.8
Non-owner occupied CRE	1,938,190		40.6		1,939,752		40.7		(1,562)		(0.1)
Total commercial business	3,779,993		79.2		3,785,739		79.4		(5,746)		(0.2)
Residential real estate	374,875		7.9		383,927		8.0		(9,052)		(2.4)
Real estate construction and land development:
Residential	90,440		1.9		78,070		1.6		12,370		15.8
Commercial and multifamily	351,196		7.4		355,268		7.4		(4,072)		(1.1)
Total real estate construction and land    development	441,636		9.3		433,338		9.0		8,298		1.9
Consumer	172,656		3.6		171,851		3.6		805		0.5
Loans receivable	$    4,769,160		100.0 %		$    4,774,855		100.0 %		$          (5,695)		(0.1)

Total deposits increased $73.1 million, or 1.3%, to $5.86 billion at September 30, 2025 from $5.78 billion at June 30, 2025. Non-maturity deposits increased by $104.5 million, or 2.2%, from June 30, 2025 due primarily to an increase in customer balances in noninterest bearing demand and interest bearing demand accounts. The increase in non-maturity deposits was partially offset by a decrease of $31.4 million in certificates of deposit accounts. The decline in certificates of deposit accounts was due primarily to the maturity of $25.1 million of brokered certificates of deposit.

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

	September 30, 2025				June 30, 2025				Change
	Balance		% of Total		Balance		% of Total		$		%
	(Dollars in thousands)
Noninterest demand deposits	$    1,617,909		27.6 %		$    1,584,231		27.4 %		$         33,678		2.1 %
Interest bearing demand deposits	1,526,685		26.1		1,487,208		25.7		39,477		2.7
Money market accounts	1,332,501		22.7		1,308,952		22.6		23,549		1.8
Savings accounts	430,127		7.3		422,372		7.3		7,755		1.8
Total non-maturity deposits	4,907,222		83.7		4,802,763		83.0		104,459		2.2
Certificates of deposit	950,242		16.3		981,650		17.0		(31,408)		(3.2)
Total deposits	$    5,857,464		100.0 %		$    5,784,413		100.0 %		$         73,051		1.3 %

Total borrowings decreased $125.2 million to $138.0 million at September 30, 2025 from $263.2 million at June 30, 2025. All outstanding borrowings at September 30, 2025 were with the Federal Home Loan Bank ("FHLB") and mature within one year.

Total stockholders' equity increased $15.9 million, or 1.8%, to $904.1 million at September 30, 2025 compared to $888.2 million at June 30, 2025 due primarily to $19.2 million of net income recognized for the quarter and a $3.7 million decrease in accumulated other comprehensive loss. These increases were partially offset by $8.3 million in dividends paid to common shareholders during the quarter.

The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as "well-capitalized" at September 30, 2025.

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

	September 30, 2025		June 30, 2025
Stockholders' equity to total assets	12.9 %		12.6 %
Tangible common equity to tangible assets (1)	9.8		9.4
Common equity tier 1 capital ratio (2)	12.4		12.2
Leverage ratio (2)	10.5		10.3
Tier 1 capital ratio (2)	12.8		12.6
Total capital ratio (2)	13.8		13.6

(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 1.13% at September 30, 2025 compared to 1.10% at June 30, 2025. The increase in the ACL as a percentage of loans was due primarily to changes in the weighted average life of loans in the real estate construction and land development segment. During the third quarter of 2025, the Company recorded a $1.6 million provision for credit losses on loans, compared to a $0.9 million provision during the second quarter of 2025.

During the third quarter of 2025, the Company recorded a $212,000 provision for credit losses on unfunded commitments compared to a $93,000 provision during the second quarter of 2025. The provision for credit losses on unfunded commitments during the third quarter of 2025 was due primarily to an increase in the unfunded exposure on construction loans.

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

	As of or for the Quarter Ended
	September 30, 2025						June 30, 2025						September 30, 2024
	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	$ 52,529		$          740		$ 53,269		$ 52,160		$          647		$ 52,807		$ 51,219		$          774		$ 51,993
Provision for (reversal of)   credit losses	1,563		212		1,775		863		93		956		2,705		(266)		2,439
(Net charge-offs) /   recoveries	(118)		—		(118)		(494)		—		(494)		(2,533)		—		(2,533)
Balance, end of period	$ 53,974		$          952		$ 54,926		$ 52,529		$          740		$ 53,269		$ 51,391		$          508		$ 51,899

Credit Quality

Classified loans (loans rated substandard or worse) decreased $5.3 million from the prior quarter, resulting in the percentage of classified loans to loans receivable decreasing to 2.0% at September 30, 2025 compared to 2.1% at June 30, 2025.

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

	September 30, 2025				June 30, 2025
	Balance		% of Total		Balance		% of Total
	(Dollars in thousands)
Risk Rating:
Pass	$    4,574,623		95.9 %		$    4,560,994		95.5 %
Special Mention	100,160		2.1		114,146		2.4
Substandard	94,377		2.0		99,715		2.1
Total	$    4,769,160		100.0 %		$    4,774,855		100.0 %

Nonaccrual loans increased by $7.7 million during the third quarter of 2025 due primarily to the migration of two residential construction loans totaling $6.7 million. The following table illustrates changes in nonaccrual loans during the periods indicated:

	Quarter Ended
	September 30, 2025		June 30, 2025		September 30, 2024
	(Dollars in thousands)
Balance, beginning of period	$            9,865		$            4,438		$            3,826
Additions	8,288		7,922		4,990
Net principal payments and transfers to accruing status	(207)		(2,041)		(173)
Payoffs	(137)		—		(1,832)
Charge-offs	(197)		(454)		(2,510)
Balance, end of period	$         17,612		$            9,865		$            4,301
Nonaccrual loans to loans receivable	0.37 %		0.21 %		0.09 %

Liquidity

Total liquidity sources available at September 30, 2025 were $2.51 billion. This includes on- and off-balance sheet liquidity. The Company has access to FHLB advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at September 30, 2025 represented a coverage ratio of 42.8% of total deposits and 100.6% of estimated uninsured deposits.

The following table summarizes the Company's available liquidity:

	Quarter Ended
	September 30, 2025		June 30, 2025
	(Dollars in thousands)
On-balance sheet liquidity
Cash and cash equivalents	$           245,491		$           254,096
Unencumbered investment securities available for sale (1)	630,666		655,876
Total on-balance sheet liquidity	$           876,157		$           909,972
Off-balance sheet liquidity
FRB borrowing availability	$           347,119		$           346,307
FHLB borrowing availability (2)	1,140,425		977,805
Fed funds line borrowing availability with correspondent banks	145,000		145,000
Total off-balance sheet liquidity	$        1,632,544		$        1,469,112
Total available liquidity	$        2,508,701		$        2,379,084

(1)	Investment securities available for sale at fair value.
(2)	Includes FHLB total borrowing availability of $1.28 billion at September 30, 2025 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.18 billion.

Net Interest Margin and Net Interest Income

Net interest margin increased 13 basis points to 3.64% during the third quarter of 2025 from 3.51% during the second quarter of 2025.

The yield on interest earning assets increased three basis points to 5.04% for the third quarter of 2025 compared to 5.01% for the second quarter of 2025. The yield on loans receivable increased three basis points to 5.53% during the third quarter of 2025, compared to 5.50% during the second quarter of 2025 as new loans were booked and adjustable rate loans repriced at higher rates.

The cost of interest bearing deposits decreased five basis points to 1.89% for the third quarter of 2025 from 1.94% for the second quarter of 2025. This decrease was primarily due to a decrease in certificate of deposit rates.

Net interest income increased $2.4 million, or 4.3%, during the third quarter of 2025 compared to the second quarter of 2025 due to a $1.0 million increase in total interest income and a decrease in interest expense of $1.4 million.

Net interest margin increased 34 basis points to 3.64% from 3.30% compared to the same period in the prior year. Net interest income increased $4.4 million, or 8.3%, during the third quarter of 2025 compared to the third quarter of 2024. The increase was due primarily to a change in the mix of earning assets to higher yielding loan balances and a decrease in deposit and borrowing interest expense due to lower rates.

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

	Quarter Ended
	September 30, 2025						June 30, 2025						September 30, 2024
	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)	$ 4,762,648		$ 66,422		5.53 %		$ 4,768,558		$ 65,373		5.50 %		$ 4,606,856		$ 64,138		5.54 %
Taxable securities	1,314,374		11,102		3.35		1,374,770		11,579		3.38		1,604,529		13,472		3.34
Nontaxable securities (3)	15,242		138		3.59		15,294		137		3.59		17,482		159		3.62
Interest earning deposits	166,182		1,846		4.41		127,687		1,411		4.43		150,384		2,048		5.42
Total interest earning assets	6,258,446		79,508		5.04 %		6,286,309		78,500		5.01 %		6,379,251		79,817		4.98 %
Noninterest earning assets	747,694						760,634						803,670
Total assets	$ 7,006,140						$ 7,046,943						$ 7,182,921
Interest Bearing Liabilities:
Certificates of deposit	$    955,737		$   8,822		3.66 %		$    979,997		$   9,349		3.83 %		$    906,743		$ 10,052		4.41 %
Savings accounts	428,256		296		0.27		425,703		288		0.27		445,926		220		0.20
Interest bearing demand and   money market accounts	2,833,048		11,003		1.54		2,770,352		10,513		1.52		2,644,827		9,984		1.50
Total interest bearing deposits	4,217,041		20,121		1.89		4,176,052		20,150		1.94		3,997,496		20,256		2.02
Junior subordinated debentures	22,239		474		8.46		22,165		472		8.54		21,946		541		9.81
Borrowings	136,582		1,542		4.48		245,663		2,895		4.73		452,364		6,062		5.33
Total interest bearing   liabilities	4,375,862		22,137		2.01 %		4,443,880		23,517		2.12 %		4,471,806		26,859		2.39 %
Noninterest demand deposits	1,625,945						1,602,987						1,677,984
Other noninterest bearing   liabilities	112,053						120,268						175,332
Stockholders' equity	892,280						879,808						857,799
Total liabilities and   stockholders' equity	$ 7,006,140						$ 7,046,943						$ 7,182,921
Net interest income and spread			$ 57,371		3.03 %				$ 54,983		2.89 %				$ 52,958		2.59 %
Net interest margin					3.64 %						3.51 %						3.30 %

(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 $1,054,000, $903,000 and $938,000 for the third quarter of 2025, second quarter of 2025 and third quarter of 2024, respectively.
(3)	Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

Noninterest Income

Noninterest income increased $6.8 million to $8.3 million during the third quarter of 2025 from $1.5 million during the second quarter of 2025. The increase was 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 Company's strategic repositioning of its balance sheet. The increase was partially offset by a decrease in bank owned life insurance ("BOLI") income due to nonrecurring death benefit proceeds received in the second quarter of 2025.

Noninterest income increased $6.5 million from the same period in 2024 due primarily to a $6.9 million loss recognized in the third quarter of 2024 resulting from the sale of investment securities as part of the above-mentioned strategic repositioning of the Company's balance sheet. The decrease was partially offset by an increase in gain on sale of other assets, net which was due to the $1.5 million gain on sale of an administrative building recognized during the third quarter of 2024.

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

	Quarter Ended						Quarter Over Quarter Change				Prior Year Quarter Change
	September 30, 2025		June 30, 2025		September 30, 2024		$		%		$		%
	(Dollars in thousands)
Service charges and other fees	$         3,046		$         2,932		$         2,788		$       114		3.9 %		$       258		9.3 %
Card revenue	2,209		2,008		2,134		201		10.0		75		3.5
Loss on sale of investment securities	—		(6,854)		(6,945)		6,854		100.0		6,945		100.0
Interest rate swap fees	96		19		—		77		405.3		96		—
Bank owned life insurance income	1,008		1,280		860		(272)		(21.3)		148		17.2
Gain on sale of other assets, net	—		5		1,480		(5)		(100.0)		(1,480)		(100.0)
Other income	1,966		2,127		1,520		(161)		(7.6)		446		29.3
Total noninterest income (loss)	$         8,325		$         1,517		$         1,837		$    6,808		448.8 %		$    6,488		353.2 %

Noninterest Expense

Noninterest expense increased $0.5 million, or 1.3%, to $41.6 million during the third quarter of 2025, compared to $41.1 million in the second quarter of 2025 due primarily to an increase in compensation and employee benefits resulting from an increase in the accrual for incentive compensation. Professional fees increased due primarily to merger related costs of $630,000 incurred during the third quarter of 2025, offset partially by a reduction in other professional expenses.

Noninterest expense increased $2.3 million, or 5.9%, during the third quarter of 2025 compared to the same period in 2024 due primarily to an increase in compensation and employee benefits due to annual merit increases in base pay and related incentive compensation expense accruals. Professional fees increased due primarily to merger related costs of $630,000 incurred during the third quarter of 2025.

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

	Quarter Ended						Quarter Over Quarter Change				Prior Year Quarter Change
	September 30, 2025		June 30, 2025		September 30, 2024		$		%		$		%
	(Dollars in thousands)
Compensation and employee   benefits	$            26,082		$            25,467		$            24,367		$     615		2.4 %		$ 1,715		7.0 %
Occupancy and equipment	4,665		4,840		4,850		(175)		(3.6)		(185)		(3.8)
Data processing	3,754		3,666		3,964		88		2.4		(210)		(5.3)
Marketing	284		336		128		(52)		(15.5)		156		121.9
Professional services	1,332		1,122		490		210		18.7		842		171.8
State/municipal business and use   taxes	1,235		1,205		1,249		30		2.5		(14)		(1.1)
Federal deposit insurance premium	796		810		824		(14)		(1.7)		(28)		(3.4)
Amortization of intangible assets	284		302		399		(18)		(6.0)		(115)		(28.8)
Other expense	3,183		3,337		3,019		(154)		(4.6)		164		5.4
Total noninterest expense	$            41,615		$            41,085		$            39,290		$     530		1.3 %		$ 2,325		5.9 %

Income Tax Expense

Income tax expense increased $0.9 million to $3.1 million during the third quarter of 2025, compared to $2.2 million during second quarter of 2025 due to an increase in pre-tax income. Impacting the amount of the increase from the prior quarter was the recognition of $515,000 in income tax expense in the second quarter of 2025 related to the surrender of $8.5 million in BOLI policies.

Income tax expense increased $1.5 million in the third quarter of 2025, compared to same period in 2024 due primarily to higher pre-tax income during the third quarter of 2025.

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

	Quarter Ended						Change
	September 30, 2025		June 30, 2025		September 30, 2024		Quarter Over Quarter		Prior Year Quarter
	(Dollars in thousands)
Income before income taxes	$         22,306		$         14,459		$         13,066		$        7,847		$           9,240
Income tax expense	$           3,137		$           2,244		$           1,643		$            893		$           1,494
Effective income tax rate	14.1 %		15.5 %		12.6 %		(1.4) %		1.5 %

Dividends

On October 22, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on November 19, 2025 to shareholders of record as of the close of business on November 5, 2025.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on Thursday, October 23, 2025 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 265266 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through November 6, 2025 by dialing (866) 813-9403 -- access code 672978.

About Heritage Financial Corporation

Heritage Financial Corporation is an Olympia, Washington-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a network of 50 branches and one loan production office in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington. The Company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA." More information about Heritage Financial Corporation 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 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. 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 in response thereto; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; effects on the U.S. economy resulting from the threat or implementation of, or changes to existing, policies and executive orders, including the imposition of tariffs, changes to immigration policy, regulatory and other governmental agencies, DEI and ESG initiatives, consumer protection, foreign policy, and tax regulations;  credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits and deposit concentrations; 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 (by type of geographic area, collateral and industry) within our loan portfolio; 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; 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 pending acquisition of Olympic; 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; potential impairment to the goodwill we recorded in connection with our past acquisitions, including the pending acquisition of Olympic; loss of, or inability to attract, key personnel; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business and the businesses of our clients; 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. 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.

Additional Information and Where to Find It

The Company will file a registration statement on Form S-4 with the SEC in connection with the proposed acquisition of Olympic. The registration statement will include a joint proxy statement of the Company and Olympic that also constitutes a prospectus of the Company, which will be sent to the shareholders of the Company and Olympic. The Company and Olympic shareholders are advised to read the joint proxy statement/prospectus when it becomes available because it will contain important information about the Company, Olympic and the proposed transaction. When filed, this document and other documents relating to the merger filed by the Company can be obtained free of charge from the SEC's website at www.sec.gov. These documents also can be obtained free of charge by accessing the Company's website at hf-wa.com under the tab "Financials." Alternatively, these documents, when available, can be obtained free of charge from the Company upon written request to the Company, Attn: Investor Relations, 201 Fifth Avenue S.W., Olympia, Washington 98501 or by calling (360) 943-1500 or from Olympic, upon written request to Olympic Bancorp, Inc., Attn: Corporate Secretary, PO Box 9, Port Orchard WA 98366. The contents of the website referenced above are not deemed to be incorporated by reference into the registration statement or the joint proxy statement/prospectus.

Participants in This Transaction

This release does not constitute a solicitation of proxy, an offer to purchase or a solicitation of an offer to sell any securities. The Company, Olympic, and certain of their directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of the Company and Olympic in connection with the proposed merger under SEC rules. Information about the directors and executive officers of the Company and Olympic will be included in the joint proxy statement/prospectus for the proposed merger filed with the SEC. These documents (when available) may be obtained free of charge in the manner described above under "Additional Information and Where to Find It."

Security holders may obtain information regarding the names, affiliations and interests of the Company's directors and executive officers in the definitive proxy statement of the Company relating to its 2025 Annual Meeting of Shareholders filed with the SEC on March 21, 2025 and in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 27, 2025. To the extent the holdings of the Company's securities by the Company's directors and executive officers have changed since the amounts set forth in the Company's proxy statement for its 2025 Annual Meeting of Shareholders, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. These documents can be obtained free of charge in the manner described above under "Additional Information and Where to Find It."

 

 

HERITAGE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in thousands, except shares)
	September 30, 2025		June 30, 2025		December 31, 2024
Assets
Cash on hand and in banks	$             74,030		$             90,754		$             58,821
Interest earning deposits	171,461		163,342		58,279
Cash and cash equivalents	245,491		254,096		117,100
Investment securities available for sale, at fair value (amortized cost of    $674,108, $704,207 and $835,592, respectively)	631,231		656,452		764,394
Investment securities held to maturity, at amortized cost (fair value of    $628,049, $629,658 and $623,452, respectively)	681,626		689,822		703,285
Total investment securities	1,312,857		1,346,274		1,467,679
Loans receivable	4,769,160		4,774,855		4,802,123
Allowance for credit losses on loans	(53,974)		(52,529)		(52,468)
Loans receivable, net	4,715,186		4,722,326		4,749,655
Premises and equipment, net	70,382		71,111		71,580
Federal Home Loan Bank stock, at cost	10,473		16,107		21,538
Bank owned life insurance	105,464		104,456		111,699
Accrued interest receivable	19,146		18,559		19,483
Prepaid expenses and other assets	289,677		294,225		303,452
Other intangible assets, net	2,264		2,548		3,153
Goodwill	240,939		240,939		240,939
Total assets	$       7,011,879		$       7,070,641		$       7,106,278
Liabilities and Stockholders' Equity
Non-interest bearing deposits	$       1,617,909		$       1,584,231		$       1,654,955
Interest bearing deposits	4,239,555		4,200,182		4,029,658
Total deposits	5,857,464		5,784,413		5,684,613
Borrowings	138,000		263,200		383,000
Junior subordinated debentures	22,277		22,204		22,058
Accrued expenses and other liabilities	90,074		112,612		153,080
Total liabilities	6,107,815		6,182,429		6,242,751
Common stock	529,949		528,758		531,674
Retained earnings	407,561		396,643		387,097
Accumulated other comprehensive loss, net	(33,446)		(37,189)		(55,244)
Total stockholders' equity	904,064		888,212		863,527
Total liabilities and stockholders' equity	$       7,011,879		$       7,070,641		$       7,106,278
Shares outstanding	33,956,738		33,953,194		33,990,827

 

HERITAGE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
	Quarter Ended						Nine Months Ended
	September 30, 2025		June 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
Interest Income
Interest and fees on loans	$          66,422		$          65,373		$          64,138		$        196,231		$        182,608
Taxable interest on investment securities	11,102		11,579		13,472		34,420		42,462
Nontaxable interest on investment securities	138		137		159		414		505
Interest on interest earning deposits	1,846		1,411		2,048		4,309		5,177
Total interest income	79,508		78,500		79,817		235,374		230,752
Interest Expense
Deposits	20,121		20,150		20,256		59,760		55,097
Junior subordinated debentures	474		472		541		1,417		1,627
Borrowings	1,542		2,895		6,062		8,153		18,427
Total interest expense	22,137		23,517		26,859		69,330		75,151
Net interest income	57,371		54,983		52,958		166,044		155,601
Provision for credit losses	1,775		956		2,439		2,782		5,099
Net interest income after provision for    credit losses	55,596		54,027		50,519		163,262		150,502
Noninterest Income
Service charges and other fees	3,046		2,932		2,788		8,953		8,393
Card revenue	2,209		2,008		2,134		5,950		5,903
Loss on sale of investment securities, net	—		(6,854)		(6,945)		(10,741)		(18,839)
Gain on sale of loans, net	—		—		—		—		26
Interest rate swap fees	96		19		—		115		52
Bank owned life insurance income	1,008		1,280		860		3,206		2,711
Gain on sale of other assets, net	—		5		1,480		8		1,529
Other income	1,966		2,127		1,520		6,254		4,408
Total noninterest income (loss)	8,325		1,517		1,837		13,745		4,183
Noninterest Expense
Compensation and employee benefits	26,082		25,467		24,367		77,348		74,291
Occupancy and equipment	4,665		4,840		4,850		14,431		14,547
Data processing	3,754		3,666		3,964		11,317		10,879
Marketing	284		336		128		955		583
Professional services	1,332		1,122		490		3,188		1,852
State/municipal business and use taxes	1,235		1,205		1,249		3,660		3,709
Federal deposit insurance premium	796		810		824		2,418		2,431
Amortization of intangible assets	284		302		399		889		1,241
Other expense	3,183		3,337		3,019		9,877		9,223
Total noninterest expense	41,615		41,085		39,290		124,083		118,756
Income before income taxes	22,306		14,459		13,066		52,924		35,929
Income tax expense	3,137		2,244		1,643		7,629		4,599
Net income	$          19,169		$          12,215		$          11,423		$          45,295		$          31,330
Basic earnings per share	$               0.56		$               0.36		$               0.33		$               1.33		$               0.91
Diluted earnings per share	$               0.55		$               0.36		$               0.33		$               1.31		$               0.90
Dividends declared per share	$               0.24		$               0.24		$               0.23		$               0.72		$               0.69
Average shares outstanding - basic	33,953,810		34,028,592		34,322,069		34,009,010		34,584,851
Average shares outstanding - diluted	34,413,386		34,446,710		34,658,674		34,481,877		35,002,375

 

HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands)
Average Balances, Yields, and Rates Paid:
	Nine Months Ended September 30,
	2025						2024
	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)	$ 4,774,926		$  196,231		5.49 %		$ 4,475,642		$  182,608		5.45 %
Taxable securities	1,371,957		34,420		3.35		1,699,995		42,462		3.34
Nontaxable securities(3)	15,406		414		3.59		19,193		505		3.51
Interest earning deposits	130,253		4,309		4.42		126,970		5,177		5.45
Total interest earning assets	6,292,542		235,374		5.00 %		6,321,800		230,752		4.88 %
Noninterest earning assets	759,206						805,790
Total assets	$ 7,051,748						$ 7,127,590
Interest Bearing Liabilities:
Certificates of deposit	$    971,933		$ 27,841		3.83 %		$    826,575		$ 26,852		4.34 %
Savings accounts	426,767		877		0.27		457,989		640		0.19
Interest bearing demand and money market accounts	2,770,162		31,042		1.50		2,643,478		27,605		1.39
Total interest bearing deposits	4,168,862		59,760		1.92		3,928,042		55,097		1.87
Junior subordinated debentures	22,164		1,417		8.55		21,874		1,627		9.94
Borrowings	233,504		8,153		4.67		484,300		18,427		5.08
Total interest bearing liabilities	4,424,530		69,330		2.10 %		4,434,216		75,151		2.26 %
Noninterest demand deposits	1,620,047						1,657,867
Other noninterest bearing liabilities	127,505						186,081
Stockholders' equity	879,666						849,426
Total liabilities and stockholders' equity	$ 7,051,748						$ 7,127,590
Net interest income and spread			$  166,044		2.90 %				$  155,601		2.62 %
Net interest margin					3.53 %						3.29 %

(1)	Annualized; average balances are calculated using daily balances.
(2)	Average loans receivable includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $2.7 million and $2.7 million for the nine months ended September 30, 2025 and 2024, respectively.
(3)	Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

 

HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:
	Quarter Ended						Nine Months Ended
	September 30, 2025		June 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
Allowance for Credit Losses on Loans:
Balance, beginning of period	$         52,529		$         52,160		$         51,219		$         52,468		$         47,999
Provision for credit losses on loans	1,563		863		2,705		2,417		5,879
Charge-offs:
Commercial business	(195)		(454)		(2,560)		(871)		(2,949)
Residential real estate	(27)		—		—		(27)		—
Consumer	(152)		(104)		(85)		(410)		(446)
Total charge-offs	(374)		(558)		(2,645)		(1,308)		(3,395)
Recoveries:
Commercial business	219		18		72		263		807
Residential real estate	1		—		—		1		—
Consumer	36		46		40		133		101
Total recoveries	256		64		112		397		908
Net (charge-offs) recoveries	(118)		(494)		(2,533)		(911)		(2,487)
Balance, end of period	$         53,974		$         52,529		$         51,391		$         53,974		$         51,391
Net charge-offs on loans to average    loans receivable annualized	0.01 %		0.04 %		0.22 %		0.03 %		0.07 %

 

	September 30, 2025		June 30, 2025		December 31, 2024
Nonperforming Assets:
Nonaccrual loans:
Commercial business	$            3,418		$            2,916		$            3,919
Residential real estate	1,290		832		—
Real estate construction and land development	12,760		5,969		—
Consumer	144		148		160
Total nonaccrual loans	17,612		9,865		4,079
Accruing loans past due 90 days or more	3,338		8,613		1,195
Total nonperforming loans	20,950		18,478		5,274
Other real estate owned	—		—		—
Nonperforming assets	$         20,950		$         18,478		$            5,274
ACL on loans to:
Loans receivable	1.13 %		1.10 %		1.09 %
Nonaccrual loans	306.46 %		532.48 %		1,286.30 %
Nonaccrual loans to loans receivable	0.37 %		0.21 %		0.08 %
Nonperforming loans to loans receivable	0.44 %		0.39 %		0.11 %
Nonperforming assets to total assets	0.30 %		0.26 %		0.07 %

 

HERITAGE FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS (Unaudited) (Dollars in thousands, except per share amounts)
	Quarter Ended
	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Earnings:
Net interest income	$         57,371		$         54,983		$         53,690		$         53,763		$         52,958
Provision for credit losses	1,775		956		51		1,183		2,439
Noninterest income	8,325		1,517		3,903		3,290		1,837
Noninterest expense	41,615		41,085		41,383		39,540		39,290
Net income	19,169		12,215		13,911		11,928		11,423
Basic earnings per share	$              0.56		$              0.36		$              0.41		$              0.35		$              0.33
Diluted earnings per share	$              0.55		$              0.36		$              0.40		$              0.34		$              0.33
Adjusted diluted earnings per share (1)	$              0.56		$              0.53		$              0.49		$              0.51		$              0.45
Average Balances:
Loans receivable	$    4,762,648		$    4,768,558		$    4,793,917		$    4,717,748		$    4,606,856
Total investment securities	1,329,616		1,390,064		1,443,662		1,530,348		1,622,011
Total interest earning assets	6,258,446		6,286,309		6,333,697		6,367,371		6,379,251
Total assets	7,006,140		7,046,943		7,103,227		7,149,294		7,182,921
Total interest bearing deposits	4,217,041		4,176,052		4,112,343		4,011,793		3,997,496
Total noninterest demand deposits	1,625,945		1,602,987		1,631,268		1,703,357		1,677,984
Stockholders' equity	892,280		879,808		866,629		868,308		857,799
Financial Ratios:
Return on average assets (2)	1.09 %		0.70 %		0.79 %		0.66 %		0.63 %
Return on average common equity (2)	8.52		5.57		6.51		5.46		5.30
Return on average tangible common    equity (1)(2)	11.86		7.85		9.22		7.81		7.62
Adjusted return on average tangible    common equity (1)(2)	12.16		11.59		11.21		11.59		10.42
Efficiency ratio	63.3		72.7		71.9		69.3		71.7
Adjusted efficiency ratio (1)	62.4		64.9		67.3		64.4		65.2
Noninterest expense to average total    assets (2)	2.36		2.34		2.36		2.20		2.18
Net interest spread (2)	3.03		2.89		2.79		2.66		2.59
Net interest margin (2)	3.64		3.51		3.44		3.36		3.30

(1)	Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.
(2)	Annualized.

 

HERITAGE FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS (Unaudited) (Dollars in thousands, except per share amounts)
	As of or for the Quarter Ended
	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Select Balance Sheet:
Total assets	$    7,011,879		$    7,070,641		$    7,129,862		$    7,106,278		$    7,153,363
Loans receivable	4,769,160		4,774,855		4,764,848		4,802,123		4,679,479
Total investment securities	1,312,857		1,346,274		1,413,903		1,467,679		1,572,179
Total deposits	5,857,464		5,784,413		5,845,335		5,684,613		5,708,492
Noninterest demand deposits	1,617,909		1,584,231		1,621,890		1,654,955		1,682,219
Stockholders' equity	904,064		888,212		881,515		863,527		874,514
Financial Measures:
Book value per share	$            26.62		$            26.16		$            25.85		$            25.40		$            25.61
Tangible book value per share (1)	19.46		18.99		18.70		18.22		18.45
Stockholders' equity to total assets	12.9 %		12.6 %		12.4 %		12.2 %		12.2 %
Tangible common equity to tangible    assets (1)	9.8		9.4		9.3		9.0		9.1
Loans to deposits ratio	81.4		82.5		81.5		84.5		82.0
Regulatory Capital Ratios:(2)
Common equity tier 1 capital ratio	12.4 %		12.2 %		12.2 %		12.0 %		12.3 %
Leverage ratio	10.5		10.3		10.2		10.0		9.9
Tier 1 capital ratio	12.8		12.6		12.6		12.4		12.7
Total capital ratio	13.8		13.6		13.6		13.3		13.6
Credit Quality Metrics:
ACL on loans to:
Loans receivable	1.13 %		1.10 %		1.09 %		1.09 %		1.10 %
Nonaccrual loans	306.5		532.5		1,175.3		1,286.3		1,194.9
Nonaccrual loans to loans receivable	0.37		0.21		0.09		0.08		0.09
Nonperforming loans to loans    receivable	0.44		0.39		0.09		0.11		0.21
Nonperforming assets to total assets	0.30		0.26		0.06		0.07		0.13
Net charge-offs on loans to average    loans receivable (3)	0.01		0.04		0.03		0.00		0.22
Criticized Loans by Credit Quality Rating:
Special mention	$       100,160		$       114,146		$       113,704		$       110,725		$         99,078
Substandard	94,377		99,715		64,387		68,318		71,977
Other Metrics:
Number of branches	50		50		50		50		50
Deposits per branch	$       117,149		$       115,688		$       116,907		$       113,692		$       114,170
Average number of full-time equivalent    employees	749		745		757		751		749
Average assets per full-time    equivalent employee	9,354		9,459		9,383		9,520		9,590

(1)	See Non-GAAP Financial Measures section herein.
(2)	Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.
(3)	Annualized.

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

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

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

	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Diluted Earnings per Share and Adjusted Diluted Earnings per Share:
Net income (GAAP)	$             19,169		$             12,215		$             13,911		$             11,928		$             11,423
Exclude loss on sale of    investment securities, net	—		6,854		3,887		3,903		6,945
Exclude merger related costs	635		—		—		—		—
Exclude gain on sale of premises    and equipment	—		(5)		(3)		(23)		(1,480)
Exclude tax effect of adjustment	(133)		(1,438)		(816)		(815)		(1,148)
Exclude BOLI restructuring costs    included in BOLI Income	—		—		—		508		—
Exclude tax expense related to    BOLI restructuring	—		515		—		2,371		—
Adjusted net income (non-GAAP)	$             19,671		$             18,141		$             16,979		$             17,872		$             15,740
Average number of diluted shares    outstanding	34,413,386		34,446,710		34,506,238		34,553,139		34,658,674
Diluted earnings per share (GAAP)	$                 0.55		$                 0.36		$                 0.40		$                 0.34		$                 0.33
Adjusted diluted earnings per share    (non-GAAP)	$                 0.56		$                 0.53		$                 0.49		$                 0.51		$                 0.45

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

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

	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)	$       904,064		$       888,212		$       881,515		$       863,527		$       874,514
Exclude intangible assets	(243,203)		(243,487)		(243,789)		(244,092)		(244,491)
Tangible common equity (non-GAAP)	$       660,861		$       644,725		$       637,726		$       619,435		$       630,023
Total assets (GAAP)	$    7,011,879		$    7,070,641		$    7,129,862		$    7,106,278		$    7,153,363
Exclude intangible assets	(243,203)		(243,487)		(243,789)		(244,092)		(244,491)
Tangible assets (non-GAAP)	$    6,768,676		$    6,827,154		$    6,886,073		$    6,862,186		$    6,908,872
Stockholders' equity to total assets    (GAAP)	12.9 %		12.6 %		12.4 %		12.2 %		12.2 %
Tangible common equity to tangible    assets (non-GAAP)	9.8 %		9.4 %		9.3 %		9.0 %		9.1 %
Shares outstanding	33,956,738		33,953,194		34,105,516		33,990,827		34,153,539
Book value per share (GAAP)	$            26.62		$            26.16		$            25.85		$            25.40		$            25.61
Tangible book value per share (non-    GAAP)	$            19.46		$            18.99		$            18.70		$            18.22		$            18.45

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

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

	Quarter Ended
	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)	$         19,169		$         12,215		$         13,911		$         11,928		$         11,423
Add amortization of intangible    assets	284		302		303		399		399
Exclude tax effect of adjustment	(60)		(63)		(64)		(84)		(84)
Tangible net income (non-GAAP)	$         19,393		$         12,454		$         14,150		$         12,243		$         11,738
Tangible net income (non-GAAP)	$         19,393		$         12,454		$         14,150		$         12,243		$         11,738
Exclude loss on sale of    investment securities, net	—		6,854		3,887		3,903		6,945
Exclude merger related costs	635		—		—		—		—
Exclude gain on sale of premises and equipment	—		(5)		(3)		(23)		(1,480)
Exclude tax effect of adjustment	(133)		(1,438)		(816)		(815)		(1,148)
Exclude BOLI restructuring costs    included in BOLI Income	—		—		—		508		—
Exclude tax expense related to    BOLI restructuring	—		515		—		2,371		—
Adjusted tangible net income (non-    GAAP)	$         19,895		$         18,380		$         17,218		$         18,187		$         16,055
Average stockholders' equity (GAAP)	$       892,280		$       879,808		$       866,629		$       868,308		$       857,799
Exclude average intangible assets	(243,350)		(243,651)		(243,945)		(244,302)		(244,706)
Average tangible common    stockholders' equity (non-GAAP)	$       648,930		$       636,157		$       622,684		$       624,006		$       613,093
Return on average common equity,    annualized (GAAP)	8.52 %		5.57 %		6.51 %		5.46 %		5.30 %
Return on average tangible common    equity, annualized (non-GAAP)	11.86 %		7.85 %		9.22 %		7.81 %		7.62 %
Adjusted return on average tangible    common equity, annualized (non-    GAAP)	12.16 %		11.59 %		11.21 %		11.59 %		10.42 %

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

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

	Quarter Ended
	September 30, 2025		June 30, 2025		March 31, 2025		December 31, 2024		September 30, 2024
Adjusted Efficiency Ratio :
Total noninterest expense (GAAP)	$         41,615		$           41,085		$           41,383		$           39,540		$         39,290
Exclude merger related costs	$              635		$                  —		$                  —		$                  —		$                —
Adjusted noninterest expense (non- GAAP)	$         40,980		$           41,085		$           41,383		$           39,540		$         39,290
Net interest income (GAAP)	$         57,371		$           54,983		$           53,690		$           53,763		$         52,958
Total noninterest income (GAAP)	$            8,325		$             1,517		$             3,903		$             3,290		$           1,837
Exclude loss on sale of    investment securities, net	—		6,854		3,887		3,903		6,945
Exclude gain on sale of premises    and equipment	—		(5)		(3)		(23)		(1,480)
Exclude BOLI restructuring costs    included in BOLI Income	—		—		—		508		—
Adjusted total noninterest income (non-GAAP)	$            8,325		$            8,366		$            7,787		$            7,678		$            7,302
Efficiency ratio (GAAP)	63.3 %		72.7 %		71.9 %		69.3 %		71.7 %
Adjusted efficiency ratio (non-GAAP)	62.4 %		64.9 %		67.3 %		64.4 %		65.2 %

 

 

 

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SOURCE Heritage Financial Corporation

FAQ

What were Heritage Financial (HFWA) Q3 2025 earnings and EPS?

Heritage reported Q3 2025 net income $19.2M and diluted EPS $0.55.

When did Heritage Financial declare its $0.24 per share dividend (HFWA)?

The company declared a regular cash dividend of $0.24 per share on October 22, 2025.

What is the status of Heritage Financial's acquisition of Olympic Bancorp (HFWA)?

Heritage announced a definitive agreement to acquire Olympic Bancorp on September 25, 2025, with closing expected in Q1 2026.

How did Heritage Financial's borrowings change in 2025 (HFWA)?

Borrowings were reduced materially, down $245M year-to-date (64%), lowering funding costs.

Did Heritage Financial's credit quality worsen in Q3 2025 (HFWA)?

Credit signals showed deterioration: nonaccrual loans rose to $17.6M and the ACL ratio increased to 1.13%.

What were Heritage Financial's deposit and loan balances at September 30, 2025 (HFWA)?

Total deposits were $5.86B and loans receivable were $4.77B as of September 30, 2025.