Heritage Financial | 8-K: FY2026 Q2 Revenue: USD 106.99 M

Revenue: As of FY2026 Q2, the actual value is USD 106.99 M.

EPS: As of FY2026 Q2, the actual value is USD 0.42, missing the estimate of USD 0.445.

EBIT: As of FY2026 Q2, the actual value is USD 21.16 M.

Net Income and Profitability

Heritage Financial Corporation reported net income of $17.5 million for the second quarter of 2026, a decrease from $18.9 million in the first quarter of 2026, but an increase from $12.2 million in the second quarter of 2025. The net interest margin increased to 3.99% in the second quarter of 2026, up 3 basis points from 3.96% in the first quarter of 2026 and significantly higher than 3.51% in the second quarter of 2025. Net interest income increased by $5.6 million, or 8.1%, to $74.8 million in the second quarter of 2026 compared to the first quarter of 2026, and increased by $19.8 million, or 36.1%, compared to the second quarter of 2025.

Operational Costs

Total noninterest expense increased by $7.8 million, or 13.7%, to $64.3 million in the second quarter of 2026, compared to $56.6 million in the first quarter of 2026. This increase was primarily due to one additional month of expenses related to the acquisition of Olympic Bancorp, Inc. Merger-related expenses were $7.5 million in the second quarter of 2026, up from $5.2 million in the first quarter of 2026. Noninterest expense also increased by $23.2 million, or 56.6%, compared to the second quarter of 2025. The cost of interest bearing deposits decreased to 1.67% in the second quarter of 2026 from 1.71% in the first quarter of 2026. The cost of total deposits was 1.21% for Q2 2026. The efficiency ratio was 76.5%, and the adjusted efficiency ratio was 63.9% for Q2 2026.

Loan Portfolio and Credit Quality

Loans receivable increased by $25.5 million, or 0.4%, to $5.75 billion at June 30, 2026, from $5.723 billion at March 31, 2026. New loans funded during the second quarter of 2026 were $162.2 million, an increase from $97.0 million in the first quarter of 2026 and $139.9 million in the second quarter of 2025. Loan prepayments were higher at $102.5 million during the second quarter of 2026, compared to $72.5 million in the first quarter of 2026. During Q2 2026, loans originated were $162 million, with prepayments of - $103 million and maturities/payoffs of - $50 million, resulting in net advances/payments of $16 million. The Allowance for Credit Losses (ACL) on loans as a percentage of loans receivable was 1.03% ($59,473 thousand) at June 30, 2026, down from 1.06% at March 31, 2026. Heritage Financial Corporation recorded an $844,000 reversal of provision for credit losses on loans in the second quarter of 2026, compared to an $820,000 reversal in the first quarter of 2026. Classified loans decreased by $15.9 million from the prior quarter, resulting in the percentage of classified loans to loans receivable decreasing to 1.8% at June 30, 2026, from 2.1% at March 31, 2026. Nonaccrual loans were $15.5 million at June 30, 2026, slightly up from $15.0 million at March 31, 2026, and represented 0.27% of loans receivable at June 30, 2026. Net charge-offs on loans to average loans, annualized, was 0.03% for Q2 2026. Criticized loans totaled $231 million at June 30, 2026, comprising $16 million in substandard nonaccrual, $90 million in substandard accrual, and $125 million in special mention loans.

Deposits and Liquidity

Total deposits decreased by $209.8 million, or 2.9%, to $7.04 billion at June 30, 2026, from $7.25 billion at March 31, 2026. Non-maturity deposits decreased by $138.4 million, or 2.3%, primarily due to a decline in noninterest bearing demand accounts. Certificates of deposit declined by $71.4 million, mainly due to the maturity of brokered certificates. Total borrowings increased by $146.3 million to $166.3 million at June 30, 2026, compared to $20.0 million at March 31, 2026. Total liquidity sources available were $3.27 billion at June 30, 2026, representing a coverage ratio of 46.5% of total deposits and 118.9% of estimated uninsured deposits. Average deposits for Q2 2026 were $7,100 million. The deposit composition at June 30, 2026, included 28.0% noninterest demand deposits, 25.7% interest-bearing demand deposits, 22.4% money market accounts, 8.3% savings accounts, and 15.0% certificates of deposit. Uninsured deposits constituted 39% of total deposits, with 13% of these being public deposits that are 100% pledged.

Capital and Dividends

Total stockholders’ equity decreased by $6.0 million, or 0.5%, to $1.11 billion at June 30, 2026, compared to $1.12 billion at March 31, 2026, partially due to the repurchase of 372,343 shares for $10.0 million. Heritage Financial Corporation declared a regular cash dividend of $0.25 per share on July 22, 2026, an increase of 4.2% from the prior $0.24 per share. This dividend is scheduled to be paid on August 19, 2026, to shareholders of record as of the close of business on August 5, 2026. The company and Bank maintained capital levels in excess of regulatory requirements to be categorized as “well-capitalized” at June 30, 2026. Capital ratios included a leverage ratio of 10.4% and a total capital ratio of 13.4% for Q2 2026.

Other Key Financial Metrics (Q2 2026)

Total assets were $8.4 billion and loans receivable were $5.7 billion. Return on Average Equity (ROAE) was 6.33%, Return on Average Tangible Common Equity (ROATCE) was 10.17%, and adjusted ROATCE was 13.29%.

Investment Portfolio

The investment portfolio’s yield for Q2 2026 was 3.54%. New purchases in Q2 2026 amounted to $44 million, and the total portfolio duration was 4.48 years at June 30, 2026. Investment cashflows are estimated to be $667 million through Q2 2029.

Outlook

Heritage Financial Corporation anticipates continued improvement in its net interest margin as fixed rate loans reprice to higher yields and expects cost savings from the Olympic Bancorp, Inc. acquisition to enhance future earnings after the systems conversion in Q3 2026. The company maintains a solid loan pipeline despite muted loan growth in Q2 due to higher prepayments, and its long-term goal is to build a Pacific Northwest regional commercial community bank with potential M&A opportunities in Washington, Oregon, and Idaho. For M&A activities, the company targets an Internal Rate of Return (IRR) greater than 15% with earnbacks of less than 3 years.