Heritage Financial Corporation (HFWA) Reports Q1 2026 Earnings: Strategic Olympic Bancorp Acquisition Drives Growth Amid Margin Expansion

Olympia, WA – April 23, 2026: Heritage Financial Corporation (Nasdaq: HFWA), the parent of Heritage Bank, released its Q1 2026 financial results, unveiling a period of transformation and robust balance sheet expansion, primarily driven by the completed acquisition of Olympic Bancorp (Kitsap Bank) on January 31, 2026. The company also declared a regular cash dividend of \$0.24 per share, payable on May 20, 2026, to shareholders of record as of May 6, 2026.

Key Highlights

• Net income: \$18.9 million (\$0.48 per diluted share) versus \$22.2 million (\$0.65) in Q4 2025 and \$13.9 million (\$0.40) in Q1 2025.
• Adjusted diluted earnings per share (EPS): \$0.59 (excludes merger-related costs), down from \$0.66 in Q4 2025, but up from \$0.49 in Q1 2025.
• Net interest margin (NIM): Improved to 3.96%, up 24 basis points from 3.72% in Q4 2025, and 52 basis points from 3.44% in Q1 2025.
• Yield on loans: Rose to 5.73%, up 19 basis points QoQ.
• Cost of interest-bearing deposits: Decreased to 1.71% from 1.83% in the previous quarter.
• Efficiency ratio: Elevated to 72.6% (reflecting M&A costs), but adjusted efficiency ratio was 63.3%, slightly above 61.5% in Q4 2025.
• Total assets: Surged 22% to \$8.5 billion, with \$1.59 billion from the Olympic merger.
• Total deposits: Jumped 22.4% to \$7.25 billion, reflecting \$1.39 billion of acquired deposits.
• Loans receivable: Up 19.6% to \$5.72 billion, mainly due to \$954.3 million in acquired loans.
• Stockholders’ equity: Increased 21% to \$1.12 billion, primarily from shares issued for the merger.
• Allowance for credit losses (ACL): 1.06% of loans, down slightly due to acquisition accounting and lower weighted average life on acquired loans.

Strategic Olympic Bancorp Acquisition

The completion of the Olympic Bancorp (Kitsap Bank) acquisition is a pivotal event for HFWA. The deal, valued at approximately \$185 million, involved the issuance of 7,167,600 Heritage shares at \$25.81 per share. The acquisition adds significant market presence in the Puget Sound region, and, per management, is already contributing to improved profitability and net interest margin. Further cost savings are expected once system integration is completed by the end of Q3 2026.

Key acquisition financials:

• Assets acquired: \$1.59 billion (including \$38.1 million in goodwill and \$50.3 million in other intangibles).
• Loans acquired: \$954.3 million, focused heavily on commercial real estate (43.5% non-owner occupied, 18.0% owner-occupied) and C&I (26.4%).
• Deposits acquired: \$1.39 billion, majority in non-maturity deposits (82.1%).
• Merger-related costs in Q1: \$5.2 million, primarily severance, professional fees, core conversion, and contract termination expenses.

Detailed Financial Performance and Balance Sheet Expansion

• Net interest income (NII): \$69.2 million, up 18.6% QoQ and 28.9% YoY. Growth driven by a larger earning asset base post-merger. The NIM improvement reflects both higher average loan balances and yields, as well as a lower cost of deposits from Olympic.
• Noninterest income: Rose to \$8.7 million, primarily from higher service charges, card fees, and BOLI income. Notably, Q1 2025 included a \$3.9 million securities loss not repeated.
• Noninterest expense: Jumped to \$56.6 million (up 36% QoQ and YoY) due to merger integration costs, higher compensation, and \$1.8 million more in intangible asset amortization.
• Provision for credit losses: The company recorded a net reversal of \$1.03 million, reflecting loan paydowns and strong credit quality on acquired assets.

Asset Quality and Liquidity

• Credit metrics remain strong: Nonaccrual loans fell by \$6 million during the quarter due to principal payoffs, with nonaccruals representing just 0.26% of loans. Classified loans rose by \$4.5 million, primarily from the acquisition, but as a percentage of loans, this fell to 2.1% from 2.4%.
• Liquidity robust: Total liquidity sources stood at \$3.20 billion (44% of total deposits), with access to FHLB and Federal Reserve credit lines. This covers over 113% of estimated uninsured deposits.

Capital Strength

• Regulatory capital ratios remain solid: CET1 12.2%, leverage ratio 10.3%, and total capital ratio 13.5% (all estimated for Q1, well above “well-capitalized” thresholds).
• Tangible common equity (TCE) ratio: 9.6%, with tangible book value per share at \$19.07.

Shareholder-Relevant Updates and Potential Share Price Drivers

• Olympic Bancorp acquisition: This is the most material event. The size, integration timeline, and projected cost synergies can have significant effects on future earnings and capital returns—and thus, share price.
• Merger-related costs: The elevated efficiency ratio (72.6%) is temporary and expected to improve post-integration. Investors should monitor for cost reductions in coming quarters as integration completes.
• Dividend maintained: The \$0.24/share payout signals confidence in capital strength and future cash flows.
• Balance sheet growth: 22% asset expansion in one quarter is transformative, but also brings integration risk. The company’s ability to realize announced cost savings and revenue synergies will be closely watched by the market.
• Credit quality stable: Despite the large influx of new loans, asset quality metrics remain strong with low nonaccrual and charge-off levels.
• Valuation implications: The tangible book value per share at \$19.07, with shares issued for the Olympic deal at \$25.81, may prompt investor focus on future returns on the acquired capital base.

Management Outlook and Forward-Looking Statements

CEO Bryan McDonald emphasized the successful Olympic Bancorp integration as a catalyst for improved profitability and market strength in the Puget Sound region. The company is on track to complete the system conversion by Q3 2026, after which additional cost savings are expected. Management reiterated a focus on prudent risk management, sustainable growth, and generating strong capital returns for shareholders.

Conference Call Information

Heritage Financial will host a conference call on April 23, 2026, at 10:00 a.m. Pacific Time to discuss Q1 earnings. Investors can dial (800) 715-9871 (access code 74100) to participate or (609) 800-9909 (access code 74100#) for a replay through May 7, 2026.

Conclusion: Why This Matters for HFWA Shareholders

The Q1 2026 results are likely to be a key catalyst for HFWA shares, as investors digest the magnitude of the Olympic Bancorp acquisition and its impact on the company’s earnings power, market position, and capital base. The substantial increase in scale, combined with a path to improved efficiency and cost savings post-integration, could drive future share price performance—assuming successful execution. However, merger integration risk and the realization of forecasted synergies will be closely scrutinized by the market in coming quarters.

Disclaimer: This article is based on Heritage Financial Corporation’s Q1 2026 earnings release and related financial disclosures. It is intended for informational purposes only and does not constitute investment advice. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Investors should review HFWA’s regulatory filings and consult with a qualified financial advisor before making investment decisions.

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