Heritage Financial Corp.: Q3 FY2025 earnings call

What management said about Q3 FY2025, from the documents filed with the SEC on 23 October 2025: press release. Guidance figures: 1 kept. The quarter’s numbers.

Read the filing

Key takeaways

• Net income rose to $19.2 million: Net income was $19.2 million, or $0.55 per diluted share, up from $12.2 million, or $0.36, in the second quarter and $11.4 million a year earlier. Source
• Net interest income up 4.3%: Net interest income was $57.4 million, up 8.3% from a year earlier. Interest income rose $1.0 million while interest expense fell $1.4 million. Source
• Margin widened 13 basis points: Net interest margin was 3.64%, up from 3.51% in the second quarter and 3.30% a year earlier. Yield on interest earning assets was 5.04%, up three basis points. Source
• Deposit costs eased: Cost of interest bearing deposits fell to 1.89% from 1.94%, which management attributed to lower certificate of deposit rates. Source
• Borrowings cut by $125 million: Borrowings fell to $138.0 million, all from the FHLB with maturities within one year. Source
• Noninterest income rose on no securities loss: Noninterest income was $8.3 million, against $1.5 million in the second quarter, when securities losses were recorded. No securities loss was recorded in the third quarter. Source
• Nonaccrual loans rose $7.7 million: Nonaccrual loans reached $17.6 million, or 0.37% of loans, and nonperforming assets were $21.0 million. Two residential construction loans totaling $6.7 million drove the increase. Source
• Olympic deal to strengthen balance sheet: Heritage agreed to acquire Olympic Bancorp, parent of Kitsap Bank. Management said the deal will further enhance balance sheet strength and improve profitability. Source

“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.”

Bryan McDonald, Chief Executive Officer of the Company

Guidance

What changed from last quarter

• New: Definitive agreement to acquire Olympic Bancorp, Inc. announced on September 25, 2025. The prior quarter release did not mention this deal. Source

Earnings and net interest income

• Net income rose to $19.2 million: Net income was $19.2 million, or $0.55 per diluted share, up from $12.2 million, or $0.36, in the second quarter and $11.4 million a year earlier. Source
• Net interest income up 4.3%: Net interest income was $57.4 million, up 8.3% from a year earlier. Interest income rose $1.0 million while interest expense fell $1.4 million. Source
• Adjusted EPS rose to $0.56: Adjusted diluted EPS, a non-GAAP measure, was $0.56, against $0.53 in the second quarter and $0.45 a year earlier. Source

Margin and funding costs

• Margin widened 13 basis points: Net interest margin was 3.64%, up from 3.51% in the second quarter and 3.30% a year earlier. Yield on interest earning assets was 5.04%, up three basis points. Source
• Deposit costs eased: Cost of interest bearing deposits fell to 1.89% from 1.94%, which management attributed to lower certificate of deposit rates. Source
• Loan yield edged higher: Yield on loans receivable rose three basis points to 5.53%, as new loans were booked and adjustable rate loans repriced at higher rates. Source
• Borrowings cut by $125 million: Borrowings fell to $138.0 million, all from the FHLB with maturities within one year. Source

“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.”

Bryan McDonald, Chief Executive Officer of the Company

Loans and deposits

• Deposits grew $73 million: Noninterest demand deposits rose 2.1% to $1.62 billion, while certificates of deposit fell $31.4 million, including $25.1 million of brokered certificates that matured. Source
• Loans slipped, new funding rose: Loans receivable declined $5.7 million, or 0.1%, to $4.77 billion. New loans funded rose to $174.5 million. Source
• Commercial and industrial loans fell: Commercial and industrial loans fell $12.0 million, or 1.4%, on pay downs, partly offset by $65.6 million of new production. Residential construction loans rose $12.4 million, or 15.8%. Source

Noninterest income and expense

• Noninterest income rose on no securities loss: Noninterest income was $8.3 million, against $1.5 million in the second quarter, when securities losses were recorded. No securities loss was recorded in the third quarter. Source
• Noninterest expense edged up: Noninterest expense was $41.6 million, up 1.3% from $41.1 million in the second quarter. Compensation rose on higher incentive compensation accruals. Source
• Merger costs lifted professional fees: Professional fees rose to $1.3 million, including $630,000 of merger related costs, partly offset by lower other professional expenses. Source
• Income tax expense rose: Income tax expense was $3.1 million, up $0.9 million from the second quarter, reflecting higher pre-tax income. Source

Credit quality and allowance

• Nonaccrual loans rose $7.7 million: Nonaccrual loans reached $17.6 million, or 0.37% of loans, and nonperforming assets were $21.0 million. Two residential construction loans totaling $6.7 million drove the increase. Source
• Allowance rose to 1.13%: Allowance for credit losses on loans was 1.13% of loans, up from 1.10%. The provision for credit losses on loans was $1.6 million. Source
• Classified loans declined: Classified loans fell $5.3 million, to 2.0% of loans receivable from 2.1% in the second quarter. Source
• Net charge-offs stayed low: Net charge-offs were 0.01% of average loans, annualized, against 0.04% in the second quarter. Source

Capital, liquidity and equity

• Capital ratios edged up: Common equity tier 1 ratio rose to 12.4% from 12.2%, and tangible book value per share rose to $19.46 from $18.99. The ratios are estimates until regulatory reports are filed. Source
• Liquidity covers uninsured deposits: Total available liquidity was $2.51 billion, covering 42.8% of total deposits and 100.6% of estimated uninsured deposits. Source
• Equity rose $15.9 million: Equity rose on $19.2 million of net income and a $3.7 million smaller accumulated other comprehensive loss, partly offset by dividends. Source

Olympic Bancorp acquisition

• Olympic deal to strengthen balance sheet: Heritage agreed to acquire Olympic Bancorp, parent of Kitsap Bank. Management said the deal will further enhance balance sheet strength and improve profitability. Source
• Form S-4 registration to be filed: The company will file a registration statement on Form S-4, including a joint proxy statement and prospectus, for the acquisition. Source

Coming up, as management said on 23 October 2025

• Olympic closing targeted Q1 2026: Management expects to close the Olympic Bancorp transaction in the first quarter of 2026. Source

Figures management reported

Risks management discussed

• Demand: Loan prepayments rose from the prior quarter, which management cited as a driver of the decline in loans receivable. Source

Other quarters

• Q2 FY2026 earnings call
• Q1 FY2026 earnings call
• Q4 FY2025 earnings call
• Q2 FY2025 results

Summarised with AI from the documents the company filed with the SEC. Every point is checked against the filing before it is shown: management’s own words word for word, figures against the line or table row they come from. A point that fails the check is left out. Source opens the filing at that line.