First Quarter 2026 Highlights
- Net income was $18.9 million, or $0.48 per diluted share, compared to $22.2 million, or $0.65 per diluted share for the fourth quarter of 2025.
- Excluding merger-related costs, net income was $0.59 per adjusted diluted share(1), compared to $0.66 per adjusted diluted share(1) in the fourth quarter of 2025.
- Net interest margin increased to 3.96%, an increase of 24 basis points from 3.72% for the fourth quarter of 2025.
- Yield on loans increased to 5.73%, an increase of 19 basis points from 5.54% for the fourth quarter of 2025.
- Cost of interest bearing deposits decreased to 1.71%, from 1.83% for the fourth quarter of 2025.
- Declared a regular cash dividend of $0.24 per share on April 22, 2026.
- Completed the acquisition of Olympic Bancorp, Inc. ("Olympic") on January 31, 2026.
OLYMPIA, Wash., April 23, 2026 /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company," "we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $18.9 million for the first quarter of 2026, compared to $22.2 million for the fourth quarter of 2025 and $13.9 million for the first quarter of 2025. Diluted earnings per share were $0.48 for the first quarter of 2026, compared to $0.65 for the fourth quarter of 2025 and $0.40 for the first quarter of 2025. Adjusted diluted earnings per share(1) were $0.59 for the first quarter of 2026, compared to $0.66 for the fourth quarter of 2025 and $0.49 for the first quarter of 2025.
Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We successfully closed our strategic acquisition of Olympic Bancorp during the first quarter. This acquisition provides us with a stronger market position in the Puget Sound region, and has contributed to our improved profitability and net interest margin in the quarter. We are on track to complete the system conversion by the end of the third quarter 2026 at which time we will begin to recognize further cost savings, which aligns with our original timeline."
"We are pleased with our operating results for the first quarter and remain focused on maintaining our strong banking organization with sustainable growth and prudent risk management which allows us to generate strong capital returns for our shareholders."
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure. |
Financial Highlights
The following table provides financial highlights as of the dates and for the periods indicated:
As of or for the Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
(Dollars in thousands, except per share amounts) | |||||
Net income | $ 18,947 | $ 22,237 | $ 13,911 | ||
Diluted earnings per share | 0.48 | 0.65 | 0.40 | ||
Adjusted diluted earnings per share(1) | 0.59 | 0.66 | 0.49 | ||
Return on average assets(2) | 0.97 % | 1.27 % | 0.79 % | ||
Return on average common equity(2) | 7.32 | 9.68 | 6.51 | ||
Return on average tangible common equity(1)(2) | 11.14 | 13.33 | 9.22 | ||
Adjusted return on average tangible common equity(1)(2) | 13.36 | 13.51 | 11.21 | ||
Net interest margin(2) | 3.96 | 3.72 | 3.44 | ||
Cost of total deposits(2) | 1.25 | 1.32 | 1.38 | ||
Efficiency ratio | 72.6 | 62.5 | 71.9 | ||
Adjusted efficiency ratio(1) | 63.3 | 61.5 | 66.8 | ||
Noninterest expense to average total assets(2) | 2.89 | 2.37 | 2.36 | ||
Adjusted noninterest expense to average total assets(1)(2) | 2.52 | 2.33 | 2.35 | ||
Total assets | $ 8,498,404 | $ 6,967,350 | $ 7,129,862 | ||
Loans receivable | 5,722,238 | 4,783,266 | 4,764,848 | ||
Total deposits | 7,248,537 | 5,920,199 | 5,845,335 | ||
Loan to deposit ratio(3) | 78.9 % | 80.8 % | 81.5 % | ||
Book value per share | $ 27.05 | $ 27.13 | $ 25.85 | ||
Tangible book value per share(1) | 19.07 | 19.98 | 18.70 | ||
(1) | Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure. |
(2) | Annualized. |
(3) | Loans receivable divided by total deposits. |
Acquisition of Olympic Bancorp, Inc. (the "Merger")
On January 31, 2026, the Company completed the acquisition of Olympic, the holding company for Kitsap Bank. As of the acquisition date, Olympic was merged with and into Heritage and Kitsap Bank was merged with and into Heritage Bank.
Pursuant to the Agreement and Plan of Merger, each issued and outstanding share of Olympic capital stock was exchanged for 45.0 shares of Heritage common stock, with cash paid in lieu of fractional shares. After the Merger was completed, based on the number of issued and outstanding shares of Olympic capital stock on January 30, 2026 (the trading day immediately preceding the completion of the Merger), 7,167,600 shares of Heritage common stock were issued as Merger consideration. Based on the closing price of Heritage common stock on Nasdaq as of January 30, 2026 of $25.81, the Merger consideration that an Olympic shareholder was entitled to receive for each share of Olympic capital stock owned had a value of $1,161.45 with an aggregate transaction value of approximately $185.0 million.
Acquisition Accounting
The Merger was accounted for using the acquisition method. Accordingly, Heritage's cost to acquire Olympic was allocated to the assets (including identifiable intangible assets) and the liabilities at their respective estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill.
Heritage adopted Financial Accounting Standards Board Accounting Standards Update 2025-08 as of January 1, 2026. Under the updated guidance, the acquired financial assets were classified as either Purchased Credit Deteriorated ("PCD"), loans that have experienced more than insignificant credit deterioration since origination, or Purchased Seasoned Loans ("PSLs"). Per ASC 326-20-30-16, all loans that are acquired as part of a business combination accounted for using the acquisition method in accordance with Subtopic 805-20 that do not meet the definition of a PCD loan are determined to be PSLs. Under both classifications, the gross-up approach is applied whereby the estimated allowance for credit loss as of the acquisition date is added back to the fair value to determine the gross amortized cost basis.
Fair values on the acquisition date are preliminary and represent management's best estimates based on available information and facts and circumstances in existence on the acquisition date. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.
The following table provides the estimated fair value of the assets acquired and liabilities assumed at the Merger date of January 31, 2026:
(dollars in thousands) | ||
Total Merger consideration | $ 184,996 | |
Assets | ||
Cash and cash equivalents | 155,167 | |
Investment securities | 311,979 | |
Loans receivable | 954,300 | |
Allowance for credit losses on loans | (9,339) | |
Loans receivable, net | 944,961 | |
Premises and equipment, net | 27,437 | |
Federal Home Loan Bank stock, at cost | 999 | |
Bank owned life insurance | 37,734 | |
Accrued interest receivable | 4,253 | |
Prepaid expenses and other assets | 19,634 | |
Other intangible assets, net | 50,305 | |
Total assets | 1,552,469 | |
Liabilities | ||
Deposits | 1,388,996 | |
Accrued expenses and other liabilities | 16,567 | |
Total liabilities | 1,405,563 | |
Fair value of net assets acquired | 146,906 | |
Goodwill acquired | 38,090 |
Total Assets
The Company's total assets increased $1.53 billion, or 22.0%, to $8.50 billion at March 31, 2026 from $6.97 billion at December 31, 2025 primarily as a result of the Merger. Assets acquired, including goodwill, from the Merger totaled $1.59 billion at the closing date of January 31, 2026.
Investment Securities
Total investment securities increased $387.8 million, or 30.3%, to $1.67 billion at March 31, 2026, from $1.28 billion at December 31, 2025. The increase was primarily due to the Merger, with acquired balances of $312.0 million. The Company repositioned a portion of the portfolio acquired in the Merger during the first quarter of 2026, with sales of $193.5 million and purchases of $315.9 million. Purchases exceeded sales in the repositioning due to the investment of excess cash acquired in the Merger, which was a result of the sale of securities by Olympic during the month preceding the Merger. Investment maturities and repayments totaled $44.5 million during the first quarter of 2026.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:
March 31, 2026 | December 31, 2025 | Change | |||||||||
Balance | % of Total | Balance | % of Total | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Investment securities available for sale, at fair value: | |||||||||||
U.S. government and agency securities | $ 11,861 | 0.7 % | $ 11,702 | 0.9 % | $ 159 | 1.4 % | |||||
Municipal securities | 63,972 | 3.8 | 51,423 | 4.0 | 12,549 | 24.4 | |||||
Residential CMO and MBS(1) | 497,228 | 29.8 | 275,268 | 21.5 | 221,960 | 80.6 | |||||
Commercial CMO and MBS(1) | 396,816 | 23.7 | 252,164 | 19.7 | 144,652 | 57.4 | |||||
Corporate obligations | 11,580 | 0.7 | 10,532 | 0.8 | 1,048 | 10.0 | |||||
Other asset-backed securities | 19,691 | 1.2 | 6,433 | 0.5 | 13,258 | 206.1 | |||||
Total | $ 1,001,148 | 59.9 % | $ 607,522 | 47.4 % | $ 393,626 | 64.8 % | |||||
Investment securities held to maturity, at amortized cost: | |||||||||||
U.S. government and agency securities | $ 151,341 | 9.1 % | $ 151,319 | 11.8 % | $ 22 | - % | |||||
Residential CMO and MBS(1) | 213,096 | 12.8 | 217,707 | 17.0 | (4,611) | (2.1) | |||||
Commercial CMO and MBS(1) | 303,826 | 18.2 | 305,081 | 23.8 | (1,255) | (0.4) | |||||
Total | $ 668,263 | 40.1 % | $ 674,107 | 52.6 % | $ (5,844) | (0.9) % | |||||
Total investment securities | $ 1,669,411 | 100.0 % | $ 1,281,629 | 100.0 % | $ 387,782 | 30.3 % | |||||
(1) | U.S. government agency and government-sponsored enterprise CMO and MBS. |
Loans Receivable
Loans receivable increased $939.0 million, or 19.6%, during the first quarter of 2026 due primarily to loans acquired in the Merger. New loans funded during the first quarter of 2026 were $97.0 million, which was lower than new loans funded during the fourth quarter of 2025 of $173.1 million and in line with new loans funded during the first quarter of 2025 of $95.8 million. Loan prepayments were similar to the prior quarter at $72.5 million, compared to $77.2 million during the fourth quarter of 2025. Loan payoffs decreased to $46.5 million, compared to $74.5 million in the prior quarter.
The following table summarizes the composition of acquired loans at the Merger date of January 31, 2026:
January 31, 2026 | |||
Balance | % of | ||
Merger - Loan Composition | (Dollars in thousands) | ||
Commercial business: | |||
Commercial and industrial | $ 251,819 | 26.4 % | |
Owner-occupied CRE | 172,141 | 18.0 % | |
Non-owner occupied CRE | 414,899 | 43.5 % | |
Total commercial business | 838,859 | 87.9 % | |
Residential real estate | 11,703 | 1.2 % | |
Real estate construction and land development: | |||
Residential | 26,765 | 2.8 % | |
Commercial and multifamily | 35,894 | 3.8 % | |
Total real estate construction and land development | 62,659 | 6.6 % | |
Consumer | 41,079 | 4.3 % | |
Loans receivable | 954,300 | 100.0 % | |
The following table summarizes the Company's loans receivable at the dates indicated:
March 31, 2026 | December 31, 2025 | Change | |||||||||
Balance | % of | Balance | % of | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Commercial business: | |||||||||||
Commercial and industrial | $ 1,059,457 | 18.5 % | $ 818,000 | 17.1 % | $ 241,457 | 29.5 % | |||||
Owner-occupied CRE | 1,213,585 | 21.2 | 1,034,829 | 21.6 | 178,756 | 17.3 | |||||
Non-owner occupied CRE | 2,466,417 | 43.1 | 2,057,844 | 43.0 | 408,573 | 19.9 | |||||
Total commercial business | 4,739,459 | 82.8 | 3,910,673 | 81.7 | 828,786 | 21.2 | |||||
Residential real estate | 361,384 | 6.3 | 358,834 | 7.5 | 2,550 | 0.7 | |||||
Real estate construction and land development: | |||||||||||
Residential | 123,409 | 2.2 | 95,350 | 2.0 | 28,059 | 29.4 | |||||
Commercial and multifamily | 288,493 | 5.0 | 247,975 | 5.2 | 40,518 | 16.3 | |||||
Total real estate construction and land | 411,902 | 7.2 | 343,325 | 7.2 | 68,577 | 20.0 | |||||
Consumer | 209,493 | 3.7 | 170,434 | 3.6 | 39,059 | 22.9 | |||||
Loans receivable | $ 5,722,238 | 100.0 % | $ 4,783,266 | 100.0 % | $ 938,972 | 19.6 | |||||
Deposits
Total deposits increased $1.33 billion, or 22.4%, to $7.25 billion at March 31, 2026 from $5.92 billion at December 31, 2025 due primarily to deposits acquired in the Merger.
The following table summarizes the composition of acquired deposits at the Merger date of January 31, 2026:
January 31, 2026 | |||
Balance | % of Total | ||
Merger - Deposit Composition | (Dollars in thousands) | ||
Noninterest demand deposits | $ 410,394 | 29.5 % | |
Interest bearing demand deposits | 336,742 | 24.2 % | |
Money market accounts | 217,685 | 15.7 % | |
Savings accounts | 175,032 | 12.6 % | |
Total non-maturity deposits | 1,139,853 | 82.1 % | |
Certificates of deposit | 249,143 | 17.9 % | |
Total deposits | $ 1,388,996 | 100.0 % | |
Total deposits, excluding the $1.39 billion of deposits acquired in the Merger, decreased $60.7 million during the first quarter of 2026 due primarily to the maturity of brokered certificates of deposit of $29 million.
The following table summarizes the Company's total deposits at the dates indicated:
March 31, 2026 | December 31, 2025 | Change | |||||||||
Balance | % of | Balance | % of | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Noninterest demand deposits | $ 2,066,383 | 28.5 % | $ 1,597,650 | 27.0 % | $ 468,733 | 29.3 % | |||||
Interest bearing demand deposits | 1,860,679 | 25.7 | 1,627,259 | 27.5 | 233,420 | 14.3 | |||||
Money market accounts | 1,588,678 | 21.9 | 1,334,904 | 22.5 | 253,774 | 19.0 | |||||
Savings accounts | 606,119 | 8.4 | 422,523 | 7.1 | 183,596 | 43.5 | |||||
Total non-maturity deposits | 6,121,859 | 84.5 | 4,982,336 | 84.1 | 1,139,523 | 22.9 | |||||
Certificates of deposit | 1,126,678 | 15.5 | 937,863 | 15.9 | 188,815 | 20.1 | |||||
Total deposits | $ 7,248,537 | 100.0 % | $ 5,920,199 | 100.0 % | $ 1,328,338 | 22.4 % | |||||
Borrowings
Total borrowings were $20.0 million at March 31, 2026 and December 31, 2025. All outstanding borrowings at March 31, 2026 were with the Federal Home Loan Bank ("FHLB") and mature within one year.
Stockholders' Equity
Total stockholders' equity increased $194.2 million, or 21.1%, to $1.12 billion at March 31, 2026, compared to $921.5 million at December 31, 2025. The increase was due primarily to the common stock issued for the Merger.
The following table summarizes changes in stockholders' equity for the Company for the period indicated:
Quarter Ended | |
March 31, | |
(In thousands) | |
Balance, beginning of period | $ 921,504 |
Common stock issued in the Merger | 184,996 |
Net income | 18,947 |
Cash dividends declared on common stock | (8,311) |
Other comprehensive loss | (1,781) |
Other | 336 |
Balance, end of period | $ 1,115,691 |
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements to be categorized as "well-capitalized" at March 31, 2026.
The following table summarizes the capital ratios for the Company at the dates indicated:
March 31, | December 31, | ||
Stockholders' equity to total assets | 13.1 % | 13.2 % | |
Tangible common equity to tangible assets (1) | 9.6 | 10.1 | |
Common equity tier 1 capital ratio (2) | 12.2 | 12.7 | |
Leverage ratio (2) | 10.3 | 10.8 | |
Tier 1 capital ratio (2) | 12.5 | 13.1 | |
Total capital ratio (2) | 13.5 | 14.1 |
(1) | Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure. |
(2) | Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. |
Allowance for Credit Losses and Provision for Credit Losses
The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.06% at March 31, 2026 compared to 1.10% at December 31, 2025. The decrease in the ACL as a percentage of loans was due primarily to the addition of the loan portfolio acquired in the Merger, which had a lower weighted average life of loans contributing to a lower ACL. On January 31, 2026, the Company recorded an initial ACL of $9.3 million for the PSL and PCD loans under ASU 2025-08 as part of the acquisition of Olympic. The ACL on loans as a percentage of loans receivable for the acquired portfolio as of the acquisition date was 0.98%.
During the first quarter of 2026, the Company recorded a $0.8 million reversal of provision for credit losses on loans, compared to a $0.9 million reversal of provision during the fourth quarter of 2025. During the first quarter of 2026, the Company recorded a $210,000 reversal provision for credit losses on unfunded commitments compared to a $95,000 provision during the fourth quarter of 2025. The reversal of provision for credit losses on unfunded commitments during the first quarter of 2026 was due primarily to an increase in utilization rates.
The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments ("ACL on Unfunded"), and the related (reversal of) provision for credit losses for the periods indicated:
As of or for the Quarter Ended | |||||||||||||||||
March 31, 2026 | December 31, 2025 | March 31, 2025 | |||||||||||||||
ACL on | ACL on | Total | ACL on | ACL on | Total | ACL on | ACL on | Total | |||||||||
(Dollars in thousands) | |||||||||||||||||
Balance, beginning of | $ 52,584 | $ 1,047 | $ 53,631 | $ 53,974 | $ 952 | $ 54,926 | $ 52,468 | $ 587 | $ 53,055 | ||||||||
Initial ACL recorded for | 9,339 | 348 | $ 9,687 | - | - | $ - | - | - | $ - | ||||||||
(Reversal of) provision | (820) | (210) | (1,030) | (909) | 95 | (814) | (9) | 60 | 51 | ||||||||
(Net charge-offs) / | (552) | - | (552) | (481) | - | (481) | (299) | - | (299) | ||||||||
Balance, end of period | $ 60,551 | $ 1,185 | $ 61,736 | $ 52,584 | $ 1,047 | $ 53,631 | $ 52,160 | $ 647 | $ 52,807 | ||||||||
Credit Quality
Classified loans (loans rated substandard or worse) increased $4.5 million from the prior quarter and was due primarily to the addition of classified loans acquired from Olympic of $11.4 million, offset by loan payoffs. The percentage of classified loans to loans receivable decreased to 2.1% at March 31, 2026, compared to 2.4% at December 31, 2025 due to an increase in total loans as a result of the Merger during the first quarter of 2026.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
March 31, 2026 | December 31, 2025 | ||||||
Balance | % of | Balance | % of | ||||
(Dollars in thousands) | |||||||
Risk Rating: | |||||||
Pass | $ 5,497,208 | 96.1 % | $ 4,595,321 | 96.1 % | |||
Special Mention | 103,699 | 1.8 | 71,122 | 1.5 | |||
Substandard | 121,331 | 2.1 | 116,823 | 2.4 | |||
Total | $ 5,722,238 | 100.0 % | $ 4,783,266 | 100.0 % | |||
Nonaccrual loans decreased by $6.0 million during the first quarter of 2026 due primarily to principal payoffs of one $5.8 million residential construction loan, one $1.5 million CRE non-owner occupied loan, and one $0.5 million CRE owner-occupied loan, offset partially by the migration of three commercial and industrial loans totaling $2.6 million, one $0.5 million CRE owner-occupied loan, and one $0.2 million residential construction loan. Olympic did not have any nonaccrual loans as of the acquisition date of January 31, 2026.
The following table illustrates changes in nonaccrual loans during the periods indicated:
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
(Dollars in thousands) | |||||
Balance, beginning of period | $ 20,976 | $ 17,612 | $ 4,079 | ||
Additions | 3,388 | 4,446 | 832 | ||
Net principal payments | (261) | (1,082) | (214) | ||
Payoffs | (7,800) | - | (38) | ||
Charge-offs | (463) | - | (221) | ||
Transfer to OREO | (741) | - | - | ||
Return to accrual | (141) | - | - | ||
Balance, end of period | $ 14,958 | $ 20,976 | $ 4,438 | ||
Nonaccrual loans to loans receivable | 0.26 % | 0.44 % | 0.09 % | ||
Liquidity
Total liquidity sources available at March 31, 2026 were $3.20 billion. This included on- and off-balance sheet liquidity. The Company has access to FHLB advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at March 31, 2026 represented a coverage ratio of 44.2% of total deposits and 113.0% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity as of the dates indicated:
Quarter Ended | |||
March 31, | December 31, | ||
(Dollars in thousands) | |||
On-balance sheet liquidity | |||
Cash and cash equivalents | $ 268,143 | $ 233,089 | |
Unencumbered investment securities available for sale (1) | 978,332 | 606,968 | |
Total on-balance sheet liquidity | $ 1,246,475 | $ 840,057 | |
Off-balance sheet liquidity | |||
FRB borrowing availability | $ 341,449 | $ 346,307 | |
FHLB borrowing availability (2) | 1,469,277 | 1,285,640 | |
Fed funds line borrowing availability with correspondent banks | 145,000 | 145,000 | |
Total off-balance sheet liquidity | $ 1,955,726 | $ 1,776,947 | |
Total available liquidity | $ 3,202,201 | $ 2,617,004 | |
(1) | Investment securities available for sale at fair value. |
(2) | Includes FHLB total borrowing availability of $1.49 billion at March 31, 2026 based on pledged assets, however, maximum credit capacity was 45% of the Bank's total assets one quarter in arrears or $3.13 billion. |
Net Interest Income and Net Interest Margin
Net interest income increased $10.9 million, or 18.6%, during the first quarter of 2026 compared to the fourth quarter of 2025 due to an $11.8 million increase in total interest income, offset partially by an increase in interest expense of $1.0 million. The increase in net interest income was primarily due to an increase in average interest earning assets, which grew substantially as a result of the Merger.
Net interest margin increased 24 basis points to 3.96% during the first quarter of 2026, from 3.72% during the fourth quarter of 2025. The increase in net interest margin was due primarily to the increase in net interest income as discussed above with the primary contributor being increases in both the average loan balance and loan yield as a result of the Merger.
The yield on interest earning assets increased 16 basis points to 5.19% for the first quarter of 2026, compared to 5.03% for the fourth quarter of 2025. The yield on loans receivable increased 19 basis points to 5.73% during the first quarter of 2026, compared to 5.54% during the fourth quarter of 2025. The increase was due primarily to the incremental accretion on purchased loans which contributed 12 basis points to loan yield and interest income recognized on nonaccrual loans which contributed six basis points to loan yield. The incremental accretion and the impact to loan yield will change during any period based on the volume of prepayments, but is expected to decrease over time as the balance of the purchased loans decreases.
The cost of interest bearing deposits decreased 12 basis points to 1.71% for the first quarter of 2026, from 1.83% for the fourth quarter of 2025. This decrease was primarily due to the deposits acquired from Olympic, which had a lower cost of deposits.
Net interest margin increased 52 basis points to 3.96% during the first quarter of 2026, compared to 3.44% for the same period in the prior year. Net interest income increased $15.5 million, or 28.9%, during the first quarter of 2026 compared to the same period in the prior year. The increase was due primarily to an increase in average interest earning assets, which increased substantially as a result of the Merger.
The following table provides net interest income information for the periods indicated:
Quarter Ended | |||||||||||||||||
March 31, 2026 | December 31, 2025 | March 31, 2025 | |||||||||||||||
Average Balance | Interest Earned/ Paid | Average | Average Balance | Interest Earned/ Paid | Average | Average Balance | Interest Earned/ Paid | Average | |||||||||
(Dollars in thousands) | |||||||||||||||||
Interest Earning Assets: | |||||||||||||||||
Loans receivable (2)(3) | $ 5,412,943 | $ 76,445 | 5.73 % | $ 4,770,300 | $ 66,669 | 5.54 % | $ 4,793,917 | $ 64,436 | 5.45 % | ||||||||
Taxable securities | 1,486,343 | 12,570 | 3.43 | 1,285,948 | 10,546 | 3.25 | 1,427,976 | 11,739 | 3.33 | ||||||||
Nontaxable securities (3) | 15,662 | 129 | 3.34 | 15,578 | 135 | 3.44 | 15,686 | 139 | 3.59 | ||||||||
Interest earning deposits | 172,723 | 1,531 | 3.59 | 151,477 | 1,512 | 3.96 | 96,118 | 1,052 | 4.44 | ||||||||
Total interest earning assets | 7,087,671 | 90,675 | 5.19 % | 6,223,303 | 78,862 | 5.03 % | 6,333,697 | 77,366 | 4.95 % | ||||||||
Noninterest earning assets | 847,331 | 730,807 | 769,530 | ||||||||||||||
Total assets | $ 7,935,002 | $ 6,954,110 | $ 7,103,227 | ||||||||||||||
Interest Bearing Liabilities: | |||||||||||||||||
Certificates of deposit | $ 1,064,676 | $ 8,814 | 3.36 % | $ 950,097 | $ 8,425 | 3.52 % | $ 980,336 | $ 9,670 | 4.00 % | ||||||||
Savings accounts | 540,403 | 315 | 0.24 | 424,214 | 277 | 0.26 | 426,321 | 293 | 0.28 | ||||||||
Interest bearing demand and | 3,303,007 | 11,618 | 1.43 | 2,876,278 | 10,874 | 1.50 | 2,705,686 | 9,526 | 1.43 | ||||||||
Total interest bearing deposits | 4,908,086 | 20,747 | 1.71 | 4,250,589 | 19,576 | 1.83 | 4,112,343 | 19,489 | 1.92 | ||||||||
Junior subordinated debentures | 22,382 | 430 | 7.79 | 22,312 | 455 | 8.09 | 22,086 | 471 | 8.65 | ||||||||
Securities sold under agreement | - | - | - | - | - | - | - | - | - | ||||||||
Borrowings | 27,372 | 279 | 4.13 | 43,228 | 470 | 4.31 | 320,286 | 3,716 | 4.71 | ||||||||
Total interest bearing | 4,957,840 | 21,456 | 1.76 % | 4,316,129 | 20,501 | 1.88 % | 4,454,715 | 23,676 | 2.16 % | ||||||||
Noninterest demand deposits | 1,833,284 | 1,635,539 | 1,631,268 | ||||||||||||||
Other noninterest bearing | 94,834 | 90,988 | 150,615 | ||||||||||||||
Stockholders' equity | 1,049,044 | 911,454 | 866,629 | ||||||||||||||
Total liabilities and | $ 7,935,002 | $ 6,954,110 | $ 7,103,227 | ||||||||||||||
Net interest income and spread | $ 69,219 | 3.43 % | $ 58,361 | 3.15 % | $ 53,690 | 2.79 % | |||||||||||
Net interest margin | 3.96 % | 3.72 % | 3.44 % | ||||||||||||||
(1) | Annualized; average balances are calculated using daily balances. |
(2) | Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $0.8 million, $1.0 million and $0.8 million for the first quarter of 2026, fourth quarter of 2025 and first quarter of 2025, respectively and the incremental accretion on purchased loans of $1.6 million, $49,000, and $153,000 for the first quarter of 2026, fourth quarter of 2025 and first quarter of 2025, respectively. |
(3) | Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. |
The following table presents the net interest margin and loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods indicated:
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
Net Interest Margin, excluding incremental accretion on purchased loans, annualized: | |||||
Net interest margin | 3.96 % | 3.72 % | 3.44 % | ||
Exclude impact from incremental accretion on purchased loans(2) | (0.09) % | - % | (0.01) % | ||
Net interest margin, excluding incremental accretion on purchased loans(1) | 3.87 % | 3.72 % | 3.43 % | ||
Loan yield, excluding incremental accretion on purchased loans, annualized: | |||||
Loan yield | 5.73 % | 5.54 % | 5.45 % | ||
Exclude impact from incremental accretion on purchased loans(2) | (0.12) | - | (0.01) | ||
Loan yield, excluding incremental accretion on purchased loans(1) | 5.61 % | 5.54 % | 5.44 % | ||
Incremental accretion on purchased loans(1) | $ 1,623 | $ 49 | $ 153 | ||
(1) | Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure. |
(2) | Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the acquisition date. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases. |
Noninterest Income
Noninterest income increased $712,000 to $8.7 million during the first quarter of 2026 from $8.0 million during the fourth quarter of 2025. The increase was due primarily to increases in service charges and other fees, card revenue and other income due to income from the acquired deposit portfolio, offset partially by a decrease in interest rate swap fees due to decreased swap activity.
Noninterest income increased $4.8 million during the first quarter of 2026 from the same period in 2025 due primarily to a $3.9 million loss recognized in the first quarter of 2025 resulting from the sale of investment securities as part of the strategic repositioning of the Company's balance sheet, and due to increases in service charges and other fees, card revenue, and BOLI income due to income from the acquired deposit portfolio and acquired BOLI.
The following table presents the key components of noninterest income and the change for the periods indicated:
Quarter Ended | Quarter Over | Prior Year Quarter Change | |||||||||||
March 31, | December 31, | March 31, | $ | % | $ | % | |||||||
(Dollars in thousands) | |||||||||||||
Service charges and other fees | $ 3,367 | $ 3,052 | $ 2,975 | $ 315 | 10.3 % | $ 392 | 13.2 % | ||||||
Card revenue | 2,103 | 1,792 | 1,733 | 311 | 17.4 | 370 | 21.4 | ||||||
Loss on sale of investment securities | - | - | (3,887) | - | - | 3,887 | 100.0 | ||||||
Interest rate swap fees | - | 381 | - | (381) | (100.0) | - | - | ||||||
BOLI income | 1,119 | 1,172 | 918 | (53) | (4.5) | 201 | 21.9 | ||||||
Gain on sale of other assets, net | - | - | 3 | - | - | (3) | (100.0) | ||||||
Other income | 2,110 | 1,590 | 2,161 | 520 | 32.7 | (51) | (2.4) | ||||||
Total noninterest income (loss) | $ 8,699 | $ 7,987 | $ 3,903 | $ 712 | 8.9 % | $ 4,796 | 122.9 % | ||||||
Noninterest Expense
Noninterest expense increased $15.1 million, or 36.3%, to $56.6 million during the first quarter of 2026, compared to $41.5 million in the fourth quarter of 2025. The increases were primarily due to expenses from the Merger, including increases related to compensation and employee benefits due to increased headcount, severance expense, occupancy and equipment expense primarily due to additional rent expense, and additional data processing expense due to an increase in transactional accounts and balances. Noninterest expense also increased due to an increase in the amortization of intangible assets of $1.8 million, relating to the Merger. Professional fees increased due primarily to Merger-related costs recognized in the first quarter of 2026. Total Merger-related costs, which consisted of severance expense, professional fees, core conversion costs, and contract termination costs incurred in the first quarter of 2026 were $5.2 million compared to $385,000 in the fourth quarter of 2025.
Noninterest expense increased $15.2 million, or 36.7%, during the first quarter of 2026 compared to the same period in 2025 due primarily to an increase in expenses related to the Merger.
The following table presents the key components of noninterest expense and the change for the periods indicated:
Quarter Ended | Quarter Over | Prior Year | |||||||||||
March 31, | December 31, | March 31, | $ | % | $ | % | |||||||
(Dollars in thousands) | |||||||||||||
Compensation and employee | $ 33,972 | $ 26,675 | $ 25,799 | $ 7,297 | 27.4 % | $ 8,173 | 31.7 % | ||||||
Occupancy and equipment | 5,330 | 4,450 | 4,926 | 880 | 19.8 | 404 | 8.2 | ||||||
Data processing | 5,093 | 3,681 | 3,897 | 1,412 | 38.4 | 1,196 | 30.7 | ||||||
Marketing | 383 | 296 | 335 | 87 | 29.4 | 48 | 14.3 | ||||||
Professional services | 2,842 | 1,070 | 734 | 1,772 | 165.6 | 2,108 | 287.2 | ||||||
State/municipal business and use | 1,674 | 1,247 | 1,220 | 427 | 34.2 | 454 | 37.2 | ||||||
Federal deposit insurance premium | 1,037 | 789 | 812 | 248 | 31.4 | 225 | 27.7 | ||||||
Other real estate owned, net | 4 | - | - | 4 | - | 4 | - | ||||||
Amortization of intangible assets | 2,058 | 285 | 303 | 1,773 | 622.1 | 1,755 | 579.2 | ||||||
Other expense | 4,158 | 2,990 | 3,357 | 1,168 | 39.1 | 801 | 23.9 | ||||||
Total noninterest expense | $ 56,551 | $ 41,483 | $ 41,383 | $ 15,068 | 36.3 % | $ 15,168 | 36.7 % | ||||||
Income Tax Expense
The effective income tax rate increased due to lower impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.
Income tax expense and the effective income tax rate increased in the first quarter of 2026, compared to same period in 2025 due primarily to higher pre-tax income during the first quarter of 2026 and lower impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended | Change | ||||||||
March 31, | December 31, | March 31, | Quarter Over | Prior Year | |||||
(Dollars in thousands) | |||||||||
Income before income taxes | $ 22,397 | $ 25,679 | $ 16,159 | $ (3,282) | $ 6,238 | ||||
Income tax expense | $ 3,450 | $ 3,442 | $ 2,248 | $ 8 | $ 1,202 | ||||
Effective income tax rate | 15.4 % | 13.4 % | 13.9 % | 2.0 % | 1.5 % | ||||
Dividends
On April 22, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on May 20, 2026 to shareholders of record as of the close of business on May 6, 2026.
Earnings Conference Call
The Company will hold a telephone conference call to discuss first quarter of 2026 earnings on Thursday, April 23, 2026 at 10:00 a.m. Pacific time. To access the call, please dial (800) 715-9871 -- access code 74100 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through May 7, 2026 by dialing (609) 800-9909 -- access code 74100#.
About Heritage Financial Corporation
Heritage Financial Corporation (the "Company") is an Olympia, Washington-based bank holding company for Heritage Bank, a full-service commercial bank and its sole wholly-owned banking subsidiary. Heritage Bank has a network of branches and loan production offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington and the Kitsap Bank name at certain branches acquired through the Merger. The Company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA." More information about the Company can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets, including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages and a potential recession or slowed economic growth; changes in the interest rate environment, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System and executive orders in response thereto; previous and potential future disruptions, security breaches, insider fraud, cybersecurity incidents or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax laws, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; effects on the U.S. economy resulting from actions taken by the federal government, including the threat or implementation of tariffs, immigration enforcement and changes in foreign policy; the effects of acts of war or terrorism, foreign relations, military conflicts, including the wars in Iran and Ukraine and the military conflict between Israel and Hamas in the Middle East, and other external events on our business and the businesses of our clients; credit and interest rate risks associated with our business, including our customers' borrowing, repayment, and deposit practices; fluctuations in deposits and the concentration of large deposits from certain customers, who have deposit balances above current FDIC insurance limits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; fluctuations in the value of our investment securities; credit risks and risks from concentrations (including by type of geographic area, collateral and industry) within our loan portfolio; the effectiveness of our risk management framework; rapid technological changes implemented by us and other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; increased competition in the financial services industry from non-banks such as credit unions and financial technology companies, including digital asset service providers; our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; our ability to implement our organic and acquisition growth strategies, including the recent acquisition of Olympic, and our ability to successfully integrate Olympic's customers and operations following the acquisition; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject, including in connection with prior acquisitions; potential impairment to the goodwill we recorded in connection with our past acquisitions, including as a result of the recent acquisition of Olympic; loss of, or inability to attract, key personnel; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire, including as a result of the recent acquisition of Olympic, into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; our success at managing and responding to the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the "SEC") which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. Forward-looking statements speak only as of the date they are made, and we do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
HERITAGE FINANCIAL CORPORATION | |||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) | |||
(Dollars in thousands, except shares) | |||
March 31, | December 31, | ||
Assets | |||
Cash on hand and in banks | $ 98,263 | $ 52,587 | |
Interest earning deposits | 169,880 | 180,502 | |
Cash and cash equivalents | 268,143 | 233,089 | |
Investment securities available for sale, at fair value (amortized cost of $1,043,442 and | 1,001,148 | 607,522 | |
Investment securities held to maturity, at amortized cost (fair value of $617,490 and | 668,263 | 674,107 | |
Total investment securities | 1,669,411 | 1,281,629 | |
Loans receivable | 5,722,238 | 4,783,266 | |
Allowance for credit losses on loans | (60,551) | (52,584) | |
Loans receivable, net | 5,661,687 | 4,730,682 | |
Other real estate owned | 755 | - | |
Premises and equipment, net | 100,509 | 74,690 | |
Federal Home Loan Bank stock, at cost | 6,072 | 5,163 | |
Bank owned life insurance | 144,865 | 105,974 | |
Accrued interest receivable | 24,278 | 19,280 | |
Prepaid expenses and other assets | 293,429 | 273,925 | |
Other intangible assets, net | 50,226 | 1,979 | |
Goodwill | 279,029 | 240,939 | |
Total assets | $ 8,498,404 | $ 6,967,350 | |
Liabilities and Stockholders' Equity | |||
Non-interest bearing deposits | 2,066,383 | 1,597,650 | |
Interest bearing deposits | 5,182,154 | 4,322,549 | |
Total deposits | 7,248,537 | 5,920,199 | |
Borrowings | 20,000 | 20,000 | |
Junior subordinated debentures | 22,424 | 22,350 | |
Accrued expenses and other liabilities | 91,752 | 83,297 | |
Total liabilities | 7,382,713 | 6,045,846 | |
Common stock | 716,432 | 531,100 | |
Retained earnings | 432,255 | 421,619 | |
Accumulated other comprehensive loss, net | (32,996) | (31,215) | |
Total stockholders' equity | 1,115,691 | 921,504 | |
Total liabilities and stockholders' equity | $ 8,498,404 | $ 6,967,350 | |
Shares outstanding | 41,249,873 | 33,963,500 | |
HERITAGE FINANCIAL CORPORATION | |||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | |||||
(Dollars in thousands, except per share amounts) | |||||
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
Interest Income | |||||
Interest and fees on loans | $ 76,445 | $ 66,669 | $ 64,436 | ||
Taxable interest on investment securities | 12,570 | 10,546 | 11,739 | ||
Nontaxable interest on investment securities | 129 | 135 | 139 | ||
Interest on interest earning deposits | 1,531 | 1,512 | 1,052 | ||
Total interest income | 90,675 | 78,862 | 77,366 | ||
Interest Expense | |||||
Deposits | 20,747 | 19,576 | 19,489 | ||
Junior subordinated debentures | 430 | 455 | 471 | ||
Borrowings | 279 | 470 | 3,716 | ||
Total interest expense | 21,456 | 20,501 | 23,676 | ||
Net interest income | 69,219 | 58,361 | 53,690 | ||
(Reversal of) provision for credit losses | (1,030) | (814) | 51 | ||
Net interest income after (reversal of) provision for credit losses | 70,249 | 59,175 | 53,639 | ||
Noninterest Income | |||||
Service charges and other fees | 3,367 | 3,052 | 2,975 | ||
Card revenue | 2,103 | 1,792 | 1,733 | ||
Loss on sale of investment securities, net | - | - | (3,887) | ||
Interest rate swap fees | - | 381 | - | ||
Bank owned life insurance income | 1,119 | 1,172 | 918 | ||
Gain on sale of other assets, net | - | - | 3 | ||
Other income | 2,110 | 1,590 | 2,161 | ||
Total noninterest income (loss) | 8,699 | 7,987 | 3,903 | ||
Noninterest Expense | |||||
Compensation and employee benefits | 33,972 | 26,675 | 25,799 | ||
Occupancy and equipment | 5,330 | 4,450 | 4,926 | ||
Data processing | 5,093 | 3,681 | 3,897 | ||
Marketing | 383 | 296 | 335 | ||
Professional services | 2,842 | 1,070 | 734 | ||
State/municipal business and use taxes | 1,674 | 1,247 | 1,220 | ||
Federal deposit insurance premium | 1,037 | 789 | 812 | ||
Other real estate owned, net | 4 | - | - | ||
Amortization of intangible assets | 2,058 | 285 | 303 | ||
Other expense | 4,158 | 2,990 | 3,357 | ||
Total noninterest expense | 56,551 | 41,483 | 41,383 | ||
Income before income taxes | 22,397 | 25,679 | 16,159 | ||
Income tax expense | 3,450 | 3,442 | 2,248 | ||
Net income | $ 18,947 | $ 22,237 | $ 13,911 | ||
Basic earnings per share | $ 0.49 | $ 0.66 | $ 0.41 | ||
Diluted earnings per share | $ 0.48 | $ 0.65 | $ 0.40 | ||
Dividends declared per share | $ 0.24 | $ 0.24 | $ 0.24 | ||
Average shares outstanding - basic | 38,683,375 | 33,957,987 | 34,012,490 | ||
Average shares outstanding - diluted | 39,104,569 | 34,405,793 | 34,506,238 | ||
HERITAGE FINANCIAL CORPORATION | |||||
FINANCIAL STATISTICS (Unaudited) | |||||
(Dollars in thousands) | |||||
Nonperforming Assets and Credit Quality Metrics: | |||||
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
Allowance for Credit Losses on Loans: | |||||
Balance, beginning of period | $ 52,584 | $ 53,974 | $ 52,468 | ||
Initial ACL recorded for PSL and PCD loans acquired during the | 9,339 | - | - | ||
(Reversal of) provision for credit losses on loans | (820) | (909) | (9) | ||
Charge-offs: | |||||
Commercial business | (400) | (565) | (222) | ||
Residential real estate | (64) | - | - | ||
Real estate construction and land development | - | - | - | ||
Consumer | (119) | (75) | (154) | ||
Total charge-offs | (583) | (640) | (376) | ||
Recoveries: | |||||
Commercial business | 4 | 140 | 26 | ||
Residential real estate | - | - | - | ||
Real estate construction and land development | - | - | - | ||
Consumer | 27 | 19 | 51 | ||
Total recoveries | 31 | 159 | 77 | ||
Net (charge-offs) recoveries | (552) | (481) | (299) | ||
Balance, end of period | $ 60,551 | $ 52,584 | $ 52,160 | ||
Net charge-offs on loans to average loans receivable (1) | 0.04 % | 0.04 % | 0.03 % | ||
(1) | Annualized. |
March 31, | December 31, | ||
Nonperforming Assets: | |||
Nonaccrual loans: | |||
Commercial business | $ 7,454 | $ 6,886 | |
Residential real estate | 583 | 1,196 | |
Real estate construction and land development | 6,514 | 12,408 | |
Consumer | 407 | 486 | |
Total nonaccrual loans | 14,958 | 20,976 | |
Accruing loans past due 90 days or more | 67 | 194 | |
Total nonperforming loans | 15,025 | 21,170 | |
Other real estate owned | 755 | - | |
Nonperforming assets | $ 15,780 | $ 21,170 | |
ACL on loans to: | |||
Loans receivable | 1.06 % | 1.10 % | |
Nonaccrual loans | 404.81 | 250.69 | |
Nonaccrual loans to loans receivable | 0.26 | 0.44 | |
Nonperforming loans to loans receivable | 0.26 | 0.44 | |
Nonperforming assets to total assets | 0.19 | 0.30 |
HERITAGE FINANCIAL CORPORATION | |||||||||
QUARTERLY FINANCIAL STATISTICS (Unaudited) | |||||||||
(Dollars in thousands, except per share amounts) | |||||||||
Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Earnings: | |||||||||
Net interest income | $ 69,219 | $ 58,361 | $ 57,371 | $ 54,983 | $ 53,690 | ||||
(Reversal of) provision for credit losses | (1,030) | (814) | 1,775 | 956 | 51 | ||||
Noninterest income | 8,699 | 7,987 | 8,325 | 1,517 | 3,903 | ||||
Noninterest expense | 56,551 | 41,483 | 41,615 | 41,085 | 41,383 | ||||
Net income | 18,947 | 22,237 | 19,169 | 12,215 | 13,911 | ||||
Basic earnings per share | $ 0.49 | $ 0.66 | $ 0.56 | $ 0.36 | $ 0.41 | ||||
Diluted earnings per share | $ 0.48 | $ 0.65 | $ 0.55 | $ 0.36 | $ 0.40 | ||||
Adjusted diluted earnings per share (1) | $ 0.59 | $ 0.66 | $ 0.56 | $ 0.53 | $ 0.49 | ||||
Average Balances: | |||||||||
Loans receivable | $ 5,412,943 | $ 4,770,300 | $ 4,762,648 | $ 4,768,558 | $ 4,793,917 | ||||
Total investment securities | 1,502,005 | 1,301,526 | 1,329,616 | 1,390,064 | 1,443,662 | ||||
Total interest earning assets | 7,087,671 | 6,223,303 | 6,258,446 | 6,286,309 | 6,333,697 | ||||
Total assets | 7,935,002 | 6,954,110 | 7,006,140 | 7,046,943 | 7,103,227 | ||||
Total interest bearing deposits | 4,908,086 | 4,250,589 | 4,217,041 | 4,176,052 | 4,112,343 | ||||
Total noninterest demand deposits | 1,833,284 | 1,635,539 | 1,625,945 | 1,602,987 | 1,631,268 | ||||
Stockholders' equity | 1,049,044 | 911,454 | 892,280 | 879,808 | 866,629 | ||||
Financial Ratios: | |||||||||
Return on average assets (2) | 0.97 % | 1.27 % | 1.09 % | 0.70 % | 0.79 % | ||||
Return on average common equity (2) | 7.32 | 9.68 | 8.52 | 5.57 | 6.51 | ||||
Return on average tangible common | 11.14 | 13.33 | 11.86 | 7.85 | 9.22 | ||||
Adjusted return on average tangible | 13.36 | 13.51 | 12.16 | 11.59 | 11.21 | ||||
Efficiency ratio | 72.6 | 62.5 | 63.3 | 72.7 | 71.9 | ||||
Adjusted efficiency ratio (1) | 63.3 | 61.5 | 61.9 | 64.4 | 66.8 | ||||
Noninterest expense to average total | 2.89 | 2.37 | 2.36 | 2.34 | 2.36 | ||||
Adjusted noninterest expense to | 2.52 | 2.33 | 2.30 | 2.32 | 2.35 | ||||
Net interest spread (2) | 3.43 | 3.15 | 3.03 | 2.89 | 2.79 | ||||
Net interest margin (2) | 3.96 | 3.72 | 3.64 | 3.51 | 3.44 | ||||
(1) | Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure. |
(2) | Annualized. |
HERITAGE FINANCIAL CORPORATION | |||||||||
QUARTERLY FINANCIAL STATISTICS (Unaudited) | |||||||||
(Dollars in thousands, except per share amounts) | |||||||||
As of or for the Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Select Balance Sheet: | |||||||||
Total assets | $ 8,498,404 | $ 6,967,350 | $ 7,011,879 | $ 7,070,641 | $ 7,129,862 | ||||
Loans receivable | 5,722,238 | 4,783,266 | 4,769,160 | 4,774,855 | 4,764,848 | ||||
Total investment securities | 1,669,411 | 1,281,629 | 1,312,857 | 1,346,274 | 1,413,903 | ||||
Total deposits | 7,248,537 | 5,920,199 | 5,857,464 | 5,784,413 | 5,845,335 | ||||
Noninterest demand deposits | 2,066,383 | 1,597,650 | 1,617,909 | 1,584,231 | 1,621,890 | ||||
Stockholders' equity | 1,115,691 | 921,504 | 904,064 | 888,212 | 881,515 | ||||
Financial Measures: | |||||||||
Book value per share | $ 27.05 | $ 27.13 | $ 26.62 | $ 26.16 | $ 25.85 | ||||
Tangible book value per share (1) | 19.07 | 19.98 | 19.46 | 18.99 | 18.70 | ||||
Stockholders' equity to total assets | 13.1 % | 13.2 % | 12.9 % | 12.6 % | 12.4 % | ||||
Tangible common equity to tangible | 9.6 | 10.1 | 9.8 | 9.4 | 9.3 | ||||
Loans to deposits ratio | 78.9 | 80.8 | 81.4 | 82.5 | 81.5 | ||||
Regulatory Capital Ratios:(2) | |||||||||
Common equity tier 1 capital ratio | 12.2 % | 12.7 % | 12.4 % | 12.2 % | 12.2 % | ||||
Leverage ratio | 10.3 | 10.8 | 10.5 | 10.3 | 10.2 | ||||
Tier 1 capital ratio | 12.5 | 13.1 | 12.8 | 12.6 | 12.6 | ||||
Total capital ratio | 13.5 | 14.1 | 13.8 | 13.6 | 13.6 | ||||
Credit Quality Metrics: | |||||||||
ACL on loans to: | |||||||||
Loans receivable | 1.06 % | 1.10 % | 1.13 % | 1.10 % | 1.09 % | ||||
Nonaccrual loans | 404.8 | 250.7 | 306.5 | 532.5 | 1,175.3 | ||||
Nonaccrual loans to loans receivable | 0.26 | 0.44 | 0.37 | 0.21 | 0.09 | ||||
Nonperforming loans to loans | 0.26 | 0.44 | 0.44 | 0.39 | 0.09 | ||||
Nonperforming assets to total assets | 0.19 | 0.30 | 0.30 | 0.26 | 0.06 | ||||
Net charge-offs on loans to average | 0.04 | 0.04 | 0.01 | 0.04 | 0.03 | ||||
Criticized Loans by Credit Quality Rating: | |||||||||
Special mention | $ 103,699 | $ 71,122 | $ 100,160 | $ 114,146 | $ 113,704 | ||||
Substandard | 121,331 | 116,823 | 94,377 | 99,715 | 64,387 | ||||
Other Metrics: | |||||||||
Number of branches | 65 | 50 | 50 | 50 | 50 | ||||
Deposits per branch | $ 111,516 | $ 118,404 | $ 117,149 | $ 115,688 | $ 116,907 | ||||
Average number of full-time equivalent | 905 | 742 | 749 | 745 | 757 | ||||
Average assets per full-time | 8,768 | 9,372 | 9,354 | 9,459 | 9,383 | ||||
(1) | See Non-GAAP Financial Measures section herein. |
(2) | Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. |
(3) | Annualized. |
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
This earnings release contains certain financial measures not presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP financial measures used in this earnings release to the comparable GAAP financial measures are presented below.
The Company believes that presenting the adjusted diluted earnings per share provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Diluted Earnings per Share and Adjusted Diluted Earnings per Share: | |||||||||
Net income (GAAP) | $ 18,947 | $ 22,237 | $ 19,169 | $ 12,215 | $ 13,911 | ||||
Exclude loss on sale of | - | - | - | 6,854 | 3,887 | ||||
Exclude merger related costs | 5,178 | 385 | 635 | - | - | ||||
Exclude gain on sale of premises | - | - | - | (5) | (3) | ||||
Exclude tax effect of adjustment | (1,087) | (81) | (133) | (1,438) | (816) | ||||
Exclude tax expense related to | - | - | - | 515 | - | ||||
Adjusted net income (non-GAAP) | $ 23,038 | $ 22,541 | $ 19,671 | $ 18,141 | $ 16,979 | ||||
Average number of diluted shares | 39,104,569 | 34,405,793 | 34,413,386 | 34,446,710 | 34,506,238 | ||||
Diluted earnings per share (GAAP) | $ 0.48 | $ 0.65 | $ 0.55 | $ 0.36 | $ 0.40 | ||||
Adjusted diluted earnings per share | $ 0.59 | $ 0.66 | $ 0.56 | $ 0.53 | $ 0.49 | ||||
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company's capital levels.
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: | |||||||||
Total stockholders' equity (GAAP) | $ 1,115,691 | $ 921,504 | $ 904,064 | $ 888,212 | $ 881,515 | ||||
Exclude intangible assets | (329,255) | (242,918) | (243,203) | (243,487) | (243,789) | ||||
Tangible common equity (non-GAAP) | $ 786,436 | $ 678,586 | $ 660,861 | $ 644,725 | $ 637,726 | ||||
Total assets (GAAP) | $ 8,498,404 | $ 6,967,350 | $ 7,011,879 | $ 7,070,641 | $ 7,129,862 | ||||
Exclude intangible assets | (329,255) | (242,918) | (243,203) | (243,487) | (243,789) | ||||
Tangible assets (non-GAAP) | $ 8,169,149 | $ 6,724,432 | $ 6,768,676 | $ 6,827,154 | $ 6,886,073 | ||||
Stockholders' equity to total assets | 13.1 % | 13.2 % | 12.9 % | 12.6 % | 12.4 % | ||||
Tangible common equity to tangible | 9.6 % | 10.1 % | 9.8 % | 9.4 % | 9.3 % | ||||
Shares outstanding | 41,249,873 | 33,963,500 | 33,956,738 | 33,953,194 | 34,105,516 | ||||
Book value per share (GAAP) | $ 27.05 | $ 27.13 | $ 26.62 | $ 26.16 | $ 25.85 | ||||
Tangible book value per share | $ 19.07 | $ 19.98 | $ 19.46 | $ 18.99 | $ 18.70 | ||||
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Return on Average Tangible Common Equity, annualized: | |||||||||
Net income (GAAP) | $ 18,947 | $ 22,237 | $ 19,169 | $ 12,215 | $ 13,911 | ||||
Add amortization of intangible | 2,058 | 285 | 284 | 302 | 303 | ||||
Exclude tax effect of adjustment | (432) | (60) | (60) | (63) | (64) | ||||
Tangible net income (non-GAAP) | $ 20,573 | $ 22,462 | $ 19,393 | $ 12,454 | $ 14,150 | ||||
Tangible net income (non-GAAP) | $ 20,573 | $ 22,462 | $ 19,393 | $ 12,454 | $ 14,150 | ||||
Exclude loss on sale of | - | - | - | 6,854 | 3,887 | ||||
Exclude merger related costs | 5,178 | 385 | 635 | - | - | ||||
Exclude gain on sale of premises | - | - | - | (5) | (3) | ||||
Exclude tax effect of adjustment | (1,087) | (81) | (133) | (1,438) | (816) | ||||
Exclude tax expense related to | - | - | - | 515 | - | ||||
Adjusted tangible net income (non-GAAP) | $ 24,664 | $ 22,766 | $ 19,895 | $ 18,380 | $ 17,218 | ||||
Average stockholders' equity (GAAP) | $ 1,049,044 | $ 911,454 | $ 892,280 | $ 879,808 | $ 866,629 | ||||
Exclude average intangible assets | (300,391) | (243,069) | (243,350) | (243,651) | (243,945) | ||||
Average tangible common | $ 748,653 | $ 668,385 | $ 648,930 | $ 636,157 | $ 622,684 | ||||
Return on average common equity, | 7.32 % | 9.68 % | 8.52 % | 5.57 % | 6.51 % | ||||
Return on average tangible common | 11.14 % | 13.33 % | 11.86 % | 7.85 % | 9.22 % | ||||
Adjusted return on average tangible | 13.36 % | 13.51 % | 12.16 % | 11.59 % | 11.21 % | ||||
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes that presenting an adjusted efficiency ratio and adjusted noninterest expense to average assets ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.
Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Adjusted Efficiency Ratio and Adjusted Noninterest Expense to Average Assets Ratio: | |||||||||
Total noninterest expense (GAAP) | $ 56,551 | $ 41,483 | $ 41,615 | $ 41,085 | $ 41,383 | ||||
Exclude Merger-related costs | 5,178 | 385 | 635 | - | - | ||||
Exclude amortization of | 2,058 | 285 | 284 | 302 | 303 | ||||
Adjusted noninterest expense (non- | $ 49,315 | $ 40,813 | $ 40,696 | $ 40,783 | $ 41,080 | ||||
Net interest income (GAAP) | $ 69,219 | $ 58,361 | $ 57,371 | $ 54,983 | $ 53,690 | ||||
Total noninterest income (GAAP) | $ 8,699 | $ 7,987 | $ 8,325 | $ 1,517 | $ 3,903 | ||||
Exclude loss on sale of | - | - | - | 6,854 | 3,887 | ||||
Exclude gain on sale of premises | - | - | - | (5) | (3) | ||||
Adjusted total noninterest income | $ 8,699 | $ 7,987 | $ 8,325 | $ 8,366 | $ 7,787 | ||||
Efficiency ratio (GAAP) | 72.6 % | 62.5 % | 63.3 % | 72.7 % | 71.9 % | ||||
Adjusted efficiency ratio (non-GAAP) | 63.3 % | 61.5 % | 61.9 % | 64.4 % | 66.8 % | ||||
Average Total assets | $ 7,935,002 | $ 6,954,110 | $ 7,006,140 | $ 7,046,943 | $ 7,103,227 | ||||
Noninterest expense to average | 2.89 % | 2.37 % | 2.36 % | 2.34 % | 2.36 % | ||||
Adjusted noninterest expense to | 2.52 % | 2.33 % | 2.30 % | 2.32 % | 2.35 % | ||||
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes presenting loan yield and net interest margin excluding the effect of discount accretion on purchased loans is useful in assessing the impact of acquisition accounting on loan yield as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off our balance sheet.
Three Months Ended | |||||
March 31, | December 31, | March 31, | |||
(Dollar amounts in thousands) | |||||
Loan yield, excluding incremental accretion on purchased loans, annualized: | |||||
Interest and fees on loans (GAAP) | $ 76,445 | $ 66,669 | $ 64,436 | ||
Exclude incremental accretion on purchased loans | 1,623 | 49 | 153 | ||
Adjusted interest and fees on loans (non-GAAP) | $ 74,822 | $ 66,620 | $ 64,283 | ||
Average loans receivable, net (GAAP) | $ 5,412,943 | $ 4,770,300 | $ 4,793,917 | ||
Loan yield, annualized (GAAP) | 5.73 % | 5.54 % | 5.45 % | ||
Loan yield, excluding incremental accretion on purchased loans, | 5.61 % | 5.54 % | 5.44 % | ||
Net Interest Margin, excluding incremental accretion on purchased loans, annualized: | |||||
Net interest income before provision (GAAP) | $ 69,219 | $ 58,361 | $ 53,690 | ||
Exclude incremental accretion on purchased loans | 1,623 | 49 | 153 | ||
Adjusted net interest income before provision (non-GAAP) | $ 67,596 | $ 58,312 | $ 53,537 | ||
Average Interest earning assets (GAAP) | $ 7,087,671 | $ 6,223,303 | $ 6,333,697 | ||
Net interest margin (GAAP) | 3.96 % | 3.72 % | 3.44 % | ||
Net interest margin, excluding incremental accretion on purchased loans | 3.87 % | 3.72 % | 3.43 % | ||
SOURCE Heritage Financial Corporation
