Heritage Financial Corp.: Q4 FY2025 earnings call

What management said about Q4 FY2025, from the documents filed with the SEC on 22 January 2026: press release. Guidance figures: 2 kept. The quarter’s numbers.

Key takeaways

Net income and diluted EPS rose: Net income was $22.2 million, or $0.65 per diluted share, against $19.2 million, or $0.55 per share, in the third quarter. Source
Net interest margin widened: Net interest margin reached 3.72% in the quarter, up 8 basis points; the company tied the rise to new and repriced loans at higher rates. Source
Deposits grew $62.7 million: Total deposits reached $5.92 billion; noninterest demand deposits fell 1.3% while interest bearing demand accounts rose 6.6%. Source
Provision moved to a reversal: The company booked a $0.9 million reversal of provision on loans, against a $1.6 million provision in the third quarter; unfunded commitments carried a $95,000 provision. Source
Classified loans rose to 2.4%: Classified loans rose $22.4 million, lifting their share of loans to 2.4% from 2.0%; special mention loans declined over the quarter. Source
Olympic approvals received: Regulatory and shareholder approvals for the Olympic acquisition are in hand; Olympic's subsidiary is Kitsap Bank. Source

“We are very pleased with our operating results for the fourth quarter, which included stronger profitability, deposit growth, margin expansion and lower cost of deposits.”
Bryan McDonald, President and Chief Executive Officer

Guidance

Area	Period	Figure	Against last quarter
Dividend per share Source	Quarterly dividend payable February 11, 2026	$0.24 per share	Kept
Olympic acquisition closing Source	January 2026	on or about January 31, 2026	Kept

What changed from last quarter

New: Regulatory and shareholder approvals for the Olympic acquisition were received since the prior release. Source
Guidance kept: Quarterly dividend kept at $0.24 per share, the same as the amount declared in October 2025. Source

Quarter earnings and profitability

Net income and diluted EPS rose: Net income was $22.2 million, or $0.65 per diluted share, against $19.2 million, or $0.55 per share, in the third quarter. Source
Return on assets rose to 1.27%: Return on average assets was 1.27% for the quarter, up from 1.09% in the third quarter, as the company reports it on an annualized basis. Source
Adjusted EPS above GAAP EPS: Adjusted diluted EPS was $0.66 against $0.56 in the third quarter; the company presents it as a non-GAAP measure reconciled to GAAP. Source

Net interest margin and income

Net interest margin widened: Net interest margin reached 3.72% in the quarter, up 8 basis points; the company tied the rise to new and repriced loans at higher rates. Source
Net interest income rose $1.0 million: Net interest income rose $1.0 million while total interest income fell $0.6 million, because interest expense dropped $1.6 million. Source
Year over year net interest income up: Net interest income was 8.6% higher than in the fourth quarter of 2024, which the company attributed to a shift in earning assets toward higher yielding loans and lower deposit and borrowing expense. Source
Deposit costs fell, loan yields edged up: The loan yield rose one basis point to 5.54%; the cost of interest bearing deposits fell six basis points to 1.83%, mainly on lower certificate rates. Source

“This quarter showed the strength of our quality banking franchise with 29% growth in adjusted diluted earnings per share from the same period in the prior year.”
Bryan McDonald, President and Chief Executive Officer

Loan growth and portfolio mix

New loan funding matched prior quarter: New loans funded were $173.1 million, close to the prior quarter; loans receivable rose 0.3%, with prepayments up to $77.2 million. Source
Non-owner occupied CRE grew most: Non-owner occupied CRE rose $119.7 million, or 6.2%, helped by transfers from construction loans; the company also cited new production of $76.5 million. Source
Construction loans fell sharply: Commercial and multifamily construction fell 29.4%, mainly from transfers to non-owner occupied CRE and paydowns; residential construction rose 5.4%. Source

Deposits, borrowings and liquidity

Deposits grew $62.7 million: Total deposits reached $5.92 billion; noninterest demand deposits fell 1.3% while interest bearing demand accounts rose 6.6%. Source
Interest bearing demand accounts led: Non-maturity deposits rose $75.1 million, led by customer balances in interest bearing demand accounts, while certificates of deposit fell $12.4 million. Source
Borrowings repaid to $20.0 million: Borrowings fell $118.0 million to $20.0 million, all from the Federal Home Loan Bank and maturing within one year. Source
Liquidity covered uninsured deposits: Available liquidity was $2.62 billion, covering 44.2% of total deposits and 107.7% of estimated uninsured deposits. Source

“We remain focused on generating long-term financial results for our shareholders.”
Bryan McDonald, President and Chief Executive Officer

Credit quality and provision

Provision moved to a reversal: The company booked a $0.9 million reversal of provision on loans, against a $1.6 million provision in the third quarter; unfunded commitments carried a $95,000 provision. Source
Classified loans rose to 2.4%: Classified loans rose $22.4 million, lifting their share of loans to 2.4% from 2.0%; special mention loans declined over the quarter. Source
Nonaccrual loans rose on three CRE loans: Nonaccrual loans increased $3.4 million, driven by three non-owner occupied CRE loans totaling $3.9 million, partly offset by principal payments received. Source
Allowance ratio eased to 1.10%: The allowance on loans was 1.10% of loans, down from 1.13%, mainly because construction loans, which carry a higher allowance ratio, declined as a share of the mix. Source

Noninterest income, expense and tax

Noninterest income edged lower: Card revenue and other income fell, partly offset by higher swap fees and BOLI income that included a death benefit. Source
Noninterest expense held near prior level: Noninterest expense was $41.5 million, with lower professional fees offsetting higher compensation and benefits. Source
Incentive accrual lifted compensation: Compensation and employee benefits rose on a higher accrual for incentive compensation, the company said. Source
Effective tax rate fell to 13.4%: Income tax expense rose $305,000 to $3.4 million on higher pre-tax income; the effective rate was 13.4% against 14.1% in the third quarter. Source

Capital and shareholder returns

Equity rose $17.4 million: Stockholders' equity reached $921.5 million, helped by $22.2 million of net income and a $2.2 million decrease in accumulated other comprehensive loss. Source
Capital ratios up, estimated: The CET1 ratio was 12.7%, up from 12.4%; the company said quarter-end ratios are estimates until regulatory reports are filed. Source
Dividends paid totaled $8.2 million: Common dividends paid during the quarter totaled $8.2 million, which partly offset the equity increase from net income. Source

Olympic Bancorp acquisition

Olympic approvals received: Regulatory and shareholder approvals for the Olympic acquisition are in hand; Olympic's subsidiary is Kitsap Bank. Source
CEO cites progress on Kitsap deal: The CEO said the company was pleased with progress completing the pending acquisition of Olympic and its subsidiary, Kitsap Bank. Source
Merger costs lower this quarter: Professional fees fell on lower merger related costs tied to Olympic; merger costs were $385,000 in the quarter against $635,000 in the third quarter. Source

Coming up, as management said on 22 January 2026

Combined bank after closing: Management said it looks forward to bringing the two organizations together once the Olympic acquisition closes. Source
Dividend payment and record dates: The declared dividend is set for payment on February 11, 2026, to holders of record on January 28, 2026. Source

Figures management reported

Figure	Reported
Net interest margin Source	3.72%
Net interest income Source	up 8.6% from prior-year quarter
Loans Source	$173.1 million new loans funded
Deposits Source	$5.92 billion, up 1.1%
Deposit costs Source	1.83%
Provision for credit losses Source	$0.9 million reversal
Net charge-offs Source	0.04% annualized
Nonperforming assets Source	$21.2 million
CET1 capital ratio Source	12.7%
Efficiency ratio Source	62.5%

Risks management discussed

Financial: Classified and nonaccrual loans both rose this quarter, with the nonaccrual increase tied to CRE loan migration. Source
External: Three federal funds rate cuts in the last four months of the year partly offset gains in loan yields. Source
Demand: Higher prepayments and payoffs reduced loan balances, limiting net loan growth this quarter. Source

Earlier plans management reported on

Not stated: The prior release stated this closing plan; the current release gives an expected end-of-January closing instead.

Other quarters

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.

As filed with the SEC

Open the filing on EDGAR

DATE: January 22, 2026

Heritage Financial Announces Fourth Quarter and

Annual 2025 Results

Fourth Quarter 2025 Highlights

Net income was $22.2 million, or $0.65 per diluted share, compared to $19.2 million, or $0.55 per diluted share, for the third quarter of 2025.
Return on average assets increased to 1.27%, from 1.09% for the third quarter of 2025.
Net interest income increased $1.0 million, or 1.7% (6.8% annualized), from the third quarter of 2025.
Net interest margin increased to 3.72%, an increase of 8 basis points from 3.64% for the third quarter of 2025.
Deposits increased $62.7 million, or 1.1% (4.2% annualized), from the third quarter of 2025.
Cost of interest bearing deposits decreased to 1.83%, from 1.89% for the third quarter of 2025.
Declared a regular cash dividend of $0.24 per share on January 16, 2026.
Received regulatory and shareholder approvals to acquire Olympic Bancorp, Inc. ("Olympic"), which is expected to close on or about January 31, 2026, subject to the satisfaction of customary closing conditions.

Olympia, WA - Heritage Financial Corporation (Nasdaq GS: HFWA) (the “Company", ”we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $22.2 million for the fourth quarter of 2025, compared to $19.2 million for the third quarter of 2025 and $11.9 million for the fourth quarter of 2024. Diluted earnings per share were $0.65 for the fourth quarter of 2025, compared to $0.55 for the third quarter of 2025 and $0.34 for the fourth quarter of 2024. Adjusted diluted earnings per share were $0.66 for the fourth quarter of 2025, compared to $0.56 for the third quarter of 2025 and $0.51 for the fourth quarter of 2024.

Bryan McDonald, President and Chief Executive Officer of the Company, commented, "We are very pleased with our operating results for the fourth quarter, which included stronger profitability, deposit growth, margin expansion and lower cost of deposits. The improvement in net interest margin provided an 8.6% increase in net interest income over fourth quarter 2024 levels. This quarter showed the strength of our quality banking franchise with 29% growth in adjusted diluted earnings per share from the same period in the prior year. We remain focused on generating long-term financial results for our shareholders."

Mr. McDonald continued, "We are also pleased with the progress made in completing the pending acquisition of Olympic and its subsidiary, Kitsap Bank. Having received both regulatory and shareholder approvals, we look forward to closing the transaction at the end of January and bringing together our two organizations.”

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
	December 31, 2025	September 30, 2025	December 31, 2024
	(Dollars in thousands, except per share amounts)
Net income	$22,237	$19,169	$11,928
Diluted earnings per share	0.65	0.55	0.34
Adjusted diluted earnings per share	0.66	0.56	0.51
Return on average assets	1.27%	1.09%	0.66%
Return on average common equity	9.68	8.52	5.46
Return on average tangible common equity(1)(2)	13.33	11.86	7.81
Adjusted return on average tangible common equity(1)(2)	13.51	12.16	11.59
Net interest margin	3.72	3.64	3.36
Cost of total deposits	1.32	1.37	1.39
Efficiency ratio	62.5	63.3	69.3
Adjusted efficiency ratio	61.9	62.4	64.4
Noninterest expense to average total assets	2.37	2.36	2.20
Total assets	$6,967,350	$7,011,879	$7,106,278
Loans receivable	4,783,266	4,769,160	4,802,123
Total deposits	5,920,199	5,857,464	5,684,613
Loan to deposit ratio	80.8%	81.4%	84.5%
Book value per share	$27.13	$26.62	$25.40
Tangible book value per share	19.98	19.46	18.22

Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.

Loans receivable divided by total deposits.

Balance Sheet

Total investment securities decreased $31.2 million, or 2.4%, to $1.28 billion at December 31, 2025, from $1.31 billion at September 30, 2025. Investment maturities and repayments totaled $37.7 million during the fourth quarter of 2025. The decrease was partially offset by purchases of $3.5 million and a $2.9 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:

	December 31, 2025		September 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	$11,702	0.9%	$11,642	0.9%	$60	0.5%
Municipal securities	51,423	4.0	51,197	3.9	226	0.4
Residential CMO and MBS	275,268	21.5	298,737	22.8	(23,469)	(7.9)
Commercial CMO and MBS	252,164	19.7	255,995	19.5	(3,831)	(1.5)
Corporate obligations	10,532	0.8	7,019	0.5	3,513	50.0
Other asset-backed securities	6,433	0.5	6,641	0.5	(208)	(3.1)
Total	$607,522	47.4%	$631,231	48.1%	$(23,709)	(3.8)%

	December 31, 2025		September 30, 2025		Change
	Balance	% of Total	Balance	% of Total	$	%
	(Dollars in thousands)
Investment securities held to maturity, at amortized cost:
U.S. government and agency securities	$151,319	11.8%	$151,297	11.5%	$22	- %
Residential CMO and MBS	217,707	17.0	224,654	17.1	(6,947)	(3.1)
Commercial CMO and MBS	305,081	23.8	305,675	23.3	(594)	(0.2)
Total	$674,107	52.6%	$681,626	51.9%	$(7,519)	(1.1)%
Total investment securities	$1,281,629	100.0%	$1,312,857	100.0%	$(31,228)	(2.4)%

U.S. government agency and government-sponsored enterprise CMO and MBS.

Loans receivable increased $14.1 million, or 0.3%, during the fourth quarter of 2025 due to new loan production for the quarter offset partially by an elevated level of prepaid and closed loans. New loans funded during the fourth quarter of 2025 were $173.1 million, compared to $174.5 million during the third quarter of 2025. Loan prepayments increased to $77.2 million during the quarter, compared to $75.6 million during the prior quarter. Loan payoffs increased to $74.5 million, compared to $55.8 million in the prior quarter.

Commercial and industrial loans decreased $1.1 million, or 0.1%, during the fourth quarter of 2025, due primarily to pay downs on outstanding balances, partially offset by new loan production of $28.8 million. Owner-occupied commercial real estate ("CRE") loans increased $12.1 million, or 1.2%, during the fourth quarter of 2025, due primarily to new loan production of $40.0 million, partially offset by pay downs on outstanding balances. Non-owner occupied CRE loans increased $119.7 million, or 6.2%, during the quarter, due primarily to transfers from commercial and multifamily construction loans and new loan production of $76.5 million, partially offset by pay downs on outstanding balances. Residential real estate loans decreased by $16.0 million, or 4.3%, during the quarter, due to loan payoffs. Residential construction loans increased by $4.9 million, or 5.4%, during the quarter, due primarily to new loan production. Commercial and multifamily construction loans decreased $103.2 million, or 29.4%, during the quarter, due primarily to transfers to non-owner occupied CRE loans and paydowns on outstanding balances.

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

	December 31, 2025		September 30, 2025		Change
	Balance	% of Total	Balance	% of Total	$	%
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$818,000	17.1%	$819,076	17.2%	$(1,076)	(0.1)%
Owner-occupied CRE	1,034,829	21.6	1,022,727	21.4	12,102	1.2
Non-owner occupied CRE	2,057,844	43.0	1,938,190	40.6	119,654	6.2
Total commercial business	3,910,673	81.7	3,779,993	79.2	130,680	3.5
Residential real estate	358,834	7.5	374,875	7.9	(16,041)	(4.3)
Real estate construction and land development:
Residential	95,350	2.0	90,440	1.9	4,910	5.4
Commercial and multifamily	247,975	5.2	351,196	7.4	(103,221)	(29.4)
Total real estate construction and land development	343,325	7.2	441,636	9.3	(98,311)	(22.3)
Consumer	170,434	3.6	172,656	3.6	(2,222)	(1.3)
Loans receivable	$4,783,266	100.0%	$4,769,160	100.0%	$14,106	0.3

Total deposits increased $62.7 million, or 1.1%, to $5.92 billion at December 31, 2025 from $5.86 billion at September 30, 2025. Non-maturity deposits increased by $75.1 million, or 1.5%, from September 30, 2025, due primarily to an increase in customer balances in interest bearing demand accounts. The increase in non-maturity deposits was partially offset by a decrease of $12.4 million in certificates of deposit accounts.

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

	December 31, 2025		September 30, 2025		Change
	Balance	% of Total	Balance	% of Total	$	%
	(Dollars in thousands)
Noninterest demand deposits	$1,597,650	27.0%	$1,617,909	27.6%	$(20,259)	(1.3)%
Interest bearing demand deposits	1,627,259	27.5	1,526,685	26.1	100,574	6.6
Money market accounts	1,334,904	22.5	1,332,501	22.7	2,403	0.2
Savings accounts	422,523	7.1	430,127	7.3	(7,604)	(1.8)
Total non-maturity deposits	4,982,336	84.1	4,907,222	83.7	75,114	1.5
Certificates of deposit	937,863	15.9	950,242	16.3	(12,379)	(1.3)
Total deposits	$5,920,199	100.0%	$5,857,464	100.0%	$62,735	1.1%

Total borrowings decreased $118.0 million to $20.0 million at December 31, 2025, from $138.0 million at September 30, 2025. All outstanding borrowings at December 31, 2025 were with the Federal Home Loan Bank ("FHLB") and mature within one year.

Total stockholders' equity increased $17.4 million, or 1.9%, to $921.5 million at December 31, 2025, compared to $904.1 million at September 30, 2025, due primarily to $22.2 million of net income recognized for the quarter and a $2.2 million decrease in accumulated other comprehensive loss. These increases were partially offset by $8.2 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 December 31, 2025.

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

	December 31, 2025	September 30, 2025
Stockholders' equity to total assets	13.2%	12.9%
Tangible common equity to tangible assets	10.1	9.8
Common equity tier 1 capital ratio	12.7	12.4
Leverage ratio	10.8	10.5
Tier 1 capital ratio	13.1	12.8
Total capital ratio	14.1	13.8

Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.

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 1.10% at December 31, 2025 compared to 1.13% at September 30, 2025. The decrease in the ACL as a percentage of loans was due primarily to a change in the mix of loans due to decreases in the real estate construction and land development segment which has a higher ACL as a percentage of loans, offset by an increase in other segments with a lower ACL as a percentage of loans. During the fourth quarter of 2025, the Company recorded a $0.9 million reversal of provision for credit losses on loans, compared to a $1.6 million provision during the third quarter of 2025.

During the fourth quarter of 2025, the Company recorded a $95,000 provision for credit losses on unfunded commitments compared to a $212,000 provision during the third quarter of 2025. The provision for credit losses on unfunded commitments during the fourth quarter of 2025 was due primarily to a decrease 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
	December 31, 2025			September 30, 2025			December 31, 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	$53,974	$952	$54,926	$52,529	$740	$53,269	$51,391	$508	$51,899
(Reversal of) provision for credit losses	(909)	95	(814)	1,563	212	1,775	1,104	79	1,183
(Net charge-offs) / recoveries	(481)	-	(481)	(118)	-	(118)	(27)	-	(27)
Balance, end of period	$52,584	$1,047	$53,631	$53,974	$952	$54,926	$52,468	$587	$53,055

Credit Quality

Classified loans (loans rated substandard or worse) increased $22.4 million from the prior quarter, resulting in the percentage of classified loans to loans receivable increasing to 2.4% at December 31, 2025, compared to 2.0% at September 30, 2025.

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

	December 31, 2025		September 30, 2025
	Balance	% of Total	Balance	% of Total
	(Dollars in thousands)
Risk Rating:
Pass	$4,595,321	96.1%	$4,574,623	95.9%
Special Mention	71,122	1.5	100,160	2.1
Substandard	116,823	2.4	94,377	2.0
Total	$4,783,266	100.0%	$4,769,160	100.0%

Nonaccrual loans increased by $3.4 million during the fourth quarter of 2025 due primarily to the migration of three non-owner occupied CRE loans totaling $3.9 million, offset partially by principal payments received. The following table illustrates changes in nonaccrual loans during the periods indicated:

	Quarter Ended
	December 31, 2025	September 30, 2025	December 31, 2024
	(Dollars in thousands)
Balance, beginning of period	$17,612	$9,865	$4,301
Additions	4,446	8,288	160
Net principal payments and transfers to accruing status	(1,082)	(207)	(250)
Payoffs	-	(137)	(132)
Charge-offs	-	(197)	-
Balance, end of period	$20,976	$17,612	$4,079
Nonaccrual loans to loans receivable	0.44%	0.37%	0.08%

Liquidity

Total liquidity sources available at December 31, 2025 were $2.62 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 December 31, 2025 represented a coverage ratio of 44.2% of total deposits and 107.7% of estimated uninsured deposits.

The following table summarizes the Company's available liquidity as of the dates indicated:

	Quarter Ended
	December 31, 2025	September 30, 2025
	(Dollars in thousands)
On-balance sheet liquidity
Cash and cash equivalents	$233,089	$245,491
Unencumbered investment securities available for sale	606,968	630,666
Total on-balance sheet liquidity	$840,057	$876,157
Off-balance sheet liquidity
FRB borrowing availability	$346,307	$347,119
FHLB borrowing availability	1,285,640	1,140,425
Fed funds line borrowing availability with correspondent banks	145,000	145,000
Total off-balance sheet liquidity	$1,776,947	$1,632,544
Total available liquidity	$2,617,004	$2,508,701

Investment securities available for sale at fair value.

Includes FHLB total borrowing availability of $1.31 billion at December 31, 2025 based on pledged assets, however, maximum credit capacity was 45% of the Bank's total assets one quarter in arrears or $3.15 billion.

Net Interest Margin and Net Interest Income

Net interest margin increased 8 basis points to 3.72% during the fourth quarter of 2025, from 3.64% during the third quarter of 2025.

The yield on interest earning assets decreased one basis point to 5.03% for the fourth quarter of 2025, compared to 5.04% for the third quarter of 2025. The yield on loans receivable increased one basis point to 5.54% during the fourth quarter of 2025, compared to 5.53% during the third quarter of 2025 as new loans were booked and adjustable rate loans repriced at higher rates, partially offset by the impacts of the three fed funds rate cuts occurring during the last four months of the year.

The cost of interest bearing deposits decreased six basis points to 1.83% for the fourth quarter of 2025, from 1.89% for the third quarter of 2025. This decrease was primarily due to a decrease in certificate of deposit rates.

Net interest income increased $1.0 million, or 1.7%, during the fourth quarter of 2025 compared to the third quarter of 2025 due to a decrease in interest expense of $1.6 million, offset partially by a $0.6 million decrease in total interest income.

Net interest margin increased 36 basis points to 3.72% during the fourth quarter of 2025, compared to 3.36% for the same period in the prior year. Net interest income increased $4.6 million, or 8.6%, during the fourth quarter of 2025 compared to the same period in the prior year. 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 and lower borrowing balances.

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

	Quarter Ended
	December 31, 2025			September 30, 2025			December 31, 2024
	Average Balance	Interest Earned/ Paid	Average Yield/ Rate	Average Balance	Interest Earned/ Paid	Average Yield/ Rate	Average Balance	Interest Earned/ Paid	Average Yield/ Rate
	(Dollars in thousands)
Interest Earning Assets:
Loans receivable (2)(3)	$4,770,300	$66,669	5.54%	$4,762,648	$66,422	5.53%	$4,717,748	$64,864	5.47%
Taxable securities	1,285,948	10,546	3.25	1,314,374	11,102	3.35	1,514,210	12,510	3.29
Nontaxable securities	15,578	135	3.44	15,242	138	3.59	16,138	146	3.60
Interest earning deposits	151,477	1,512	3.96	166,182	1,846	4.41	119,275	1,440	4.80
Total interest earning assets	6,223,303	78,862	5.03%	6,258,446	79,508	5.04%	6,367,371	78,960	4.93%
Noninterest earning assets	730,807			747,694			781,923
Total assets	$6,954,110			$7,006,140			$7,149,294
Interest Bearing Liabilities:
Certificates of deposit	$950,097	$8,425	3.52%	$955,737	$8,822	3.66%	$947,929	$10,070	4.23%
Savings accounts	424,214	277	0.26	428,256	296	0.27	432,287	280	0.26

	Quarter Ended
	December 31, 2025			September 30, 2025			December 31, 2024
	Average Balance	Interest Earned/ Paid	Average Yield/ Rate	Average Balance	Interest Earned/ Paid	Average Yield/ Rate	Average Balance	Interest Earned/ Paid	Average Yield/ Rate
	(Dollars in thousands)
Interest bearing demand and money market accounts	2,876,278	10,874	1.50	2,833,048	11,003	1.54	2,631,577	9,622	1.45
Total interest bearing deposits	4,250,589	19,576	1.83	4,217,041	20,121	1.89	4,011,793	19,972	1.98
Junior subordinated debentures	22,312	455	8.09	22,239	474	8.46	22,019	512	9.25
Borrowings	43,228	470	4.31	136,582	1,542	4.48	373,493	4,713	5.02
Total interest bearing liabilities	4,316,129	20,501	1.88%	4,375,862	22,137	2.01%	4,407,305	25,197	2.27%
Noninterest demand deposits	1,635,539			1,625,945			1,703,357
Other noninterest bearing liabilities	90,988			112,053			170,324
Stockholders’ equity	911,454			892,280			868,308
Total liabilities and stockholders’ equity	$6,954,110			$7,006,140			$7,149,294
Net interest income and spread		$58,361	3.15%		$57,371	3.03%		$53,763	2.66%
Net interest margin			3.72%			3.64%			3.36%

Annualized; average balances are calculated using daily balances.

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 $1.0 million, $1.1 million and $0.9 million for the fourth quarter of 2025, third quarter of 2025 and fourth quarter of 2024, respectively.

Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

Noninterest Income

Noninterest income decreased $338,000 to $8.0 million during the fourth quarter of 2025 from $8.3 million during the third quarter of 2025. The decrease was due primarily to decreases in card revenue and a decrease in other income, offset partially by an increase in interest rate swap fees due to increased swap activity and an increase in bank owned life insurance ("BOLI") income due to the recognition of a death benefit.

Noninterest income increased $4.7 million during the fourth quarter of 2025 from the same period in 2024 due primarily to a $3.9 million loss recognized in the fourth quarter of 2024 resulting from the sale of investment securities as part of the strategic repositioning of the Company's balance sheet and an increase in BOLI income as the Company incurred $508,000 in costs related to the restructuring of the BOLI portfolio in the fourth 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
	December 31, 2025	September 30, 2025	December 31, 2024	$	%	$	%
	(Dollars in thousands)
Service charges and other fees	$3,052	$3,046	$2,892	$6	0.2%	$160	5.5%
Card revenue	1,792	2,209	1,849	(417)	(18.9)	(57)	(3.1)
Loss on sale of investment securities	-	-	(3,903)	-	-	3,903	100.0
Interest rate swap fees	381	96	357	285	296.9	24	6.7
BOLI income	1,172	1,008	256	164	16.3	916	357.8
Gain on sale of other assets, net	-	-	23	-	-	(23)	(100.0)
Other income	1,590	1,966	1,816	(376)	(19.1)	(226)	(12.4)
Total noninterest income (loss)	$7,987	$8,325	$3,290	$(338)	(4.1)%	$4,697	142.8%

Noninterest Expense

Noninterest expense decreased $132,000, or 0.3%, to $41.5 million during the fourth quarter of 2025, compared to $41.6 million in the third quarter of 2025. Compensation and employee benefits increased due to an increase in the accrual for incentive compensation. Professional fees decreased due primarily to lower merger related costs recognized in the fourth quarter of 2025 associated with the acquisition of Olympic.

Noninterest expense increased $1.9 million, or 4.9%, during the fourth 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, an increase in benefit expense and incentive compensation expense accruals.

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
	December 31, 2025	September 30, 2025	December 31, 2024	$	%	$	%
	(Dollars in thousands)
Compensation and employee benefits	$26,675	$26,082	$24,236	$593	2.3%	$2,439	10.1%
Occupancy and equipment	4,450	4,665	4,742	(215)	(4.6)	(292)	(6.2)
Data processing	3,681	3,754	4,020	(73)	(1.9)	(339)	(8.4)
Marketing	296	284	405	12	4.2	(109)	(26.9)
Professional services	1,070	1,332	663	(262)	(19.7)	407	61.4
State/municipal business and use taxes	1,247	1,235	1,180	12	1.0	67	5.7
Federal deposit insurance premium	789	796	829	(7)	(0.9)	(40)	(4.8)
Amortization of intangible assets	285	284	399	1	0.4	(114)	(28.6)
Other expense	2,990	3,183	3,066	(193)	(6.1)	(76)	(2.5)
Total noninterest expense	$41,483	$41,615	$39,540	$(132)	(0.3)%	$1,943	4.9%

Income Tax Expense

Income tax expense increased $305,000 to $3.4 million during the fourth quarter of 2025, compared to $3.1 million during the third quarter of 2025 due to an increase in pre-tax income.

Income tax expense and the effective income tax rate decreased in the fourth quarter of 2025, compared to same period in 2024 due primarily to additional tax expense of $2.4 million related to BOLI restructuring during the fourth quarter of 2024, partially offset by increased income tax expense on higher pre-tax income during the fourth quarter of 2025.

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

	Quarter Ended			Change
	December 31, 2025	September 30, 2025	December 31, 2024	Quarter Over Quarter	Prior Year Quarter
	(Dollars in thousands)
Income before income taxes	$25,679	$22,306	$16,330	$3,373	$9,349
Income tax expense	$3,442	$3,137	$4,402	$305	$(960)
Effective income tax rate	13.4%	14.1%	27.0%	(0.7)%	(13.6)%

Dividends

On January 16, 2026, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on February 11, 2026 to shareholders of record as of the close of business on January 28, 2026.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on Thursday, January 22, 2026 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 927284 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through February 5, 2026 by dialing (866) 813-9403 -- access code 715393.

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

Forward-looking statements notice

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 tariffs, 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 (including 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; 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, 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; 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; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire, including as a result of the 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, acts of war or terrorism, foreign relations, 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.

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except shares)

	December 31, 2025	September 30, 2025	December 31, 2024
Assets
Cash on hand and in banks	$52,587	$74,030	$58,821
Interest earning deposits	180,502	171,461	58,279
Cash and cash equivalents	233,089	245,491	117,100
Investment securities available for sale, at fair value (amortized cost of $647,505, $674,108 and $835,592, respectively)	607,522	631,231	764,394
Investment securities held to maturity, at amortized cost (fair value of $625,287, $628,049 and $623,452, respectively)	674,107	681,626	703,285
Total investment securities	1,281,629	1,312,857	1,467,679
Loans receivable	4,783,266	4,769,160	4,802,123
Allowance for credit losses on loans	(52,584)	(53,974)	(52,468)
Loans receivable, net	4,730,682	4,715,186	4,749,655
Premises and equipment, net	74,690	70,382	71,580
Federal Home Loan Bank stock, at cost	5,163	10,473	21,538
BOLI	105,974	105,464	111,699
Accrued interest receivable	19,280	19,146	19,483
Prepaid expenses and other assets	273,925	289,677	303,452
Other intangible assets, net	1,979	2,264	3,153
Goodwill	240,939	240,939	240,939
Total assets	$6,967,350	$7,011,879	$7,106,278
Liabilities and Stockholders' Equity
Non-interest bearing deposits	$1,597,650	$1,617,909	$1,654,955
Interest bearing deposits	4,322,549	4,239,555	4,029,658
Total deposits	5,920,199	5,857,464	5,684,613
Borrowings	20,000	138,000	383,000
Junior subordinated debentures	22,350	22,277	22,058
Accrued expenses and other liabilities	83,297	90,074	153,080
Total liabilities	6,045,846	6,107,815	6,242,751
Common stock	531,100	529,949	531,674
Retained earnings	421,619	407,561	387,097
Accumulated other comprehensive loss, net	(31,215)	(33,446)	(55,244)
Total stockholders' equity	921,504	904,064	863,527
Total liabilities and stockholders' equity	$6,967,350	$7,011,879	$7,106,278
Shares outstanding	33,963,500	33,956,738	33,990,827

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share amounts)

	Quarter Ended						Year Ended
	December 31, 2025		September 30, 2025		December 31, 2024		December 31, 2025		December 31, 2024
Interest Income
Interest and fees on loans	$66,669		$66,422		$64,864		$262,900		$247,472
Taxable interest on investment securities	10,546		11,102		12,510		44,966		54,972
Nontaxable interest on investment securities	135		138		146		549		651
Interest on interest earning deposits	1,512		1,846		1,440		5,821		6,617
Total interest income	78,862		79,508		78,960		314,236		309,712
Interest Expense
Deposits	19,576		20,121		19,972		79,336		75,069
Junior subordinated debentures	455		474		512		1,872		2,139
Borrowings	470		1,542		4,713		8,623		23,140
Total interest expense	20,501		22,137		25,197		89,831		100,348
Net interest income	58,361		57,371		53,763		224,405		209,364
(Reversal of) provision for credit losses	(814)		1,775		1,183		1,968		6,282
Net interest income after (reversal of) provision for credit losses	59,175		55,596		52,580		222,437		203,082
Noninterest Income
Service charges and other fees	3,052		3,046		2,892		12,005		11,285
Card revenue	1,792		2,209		1,849		7,742		7,752
Loss on sale of investment securities, net	-		-		(3,903)		(10,741)		(22,742)
Gain on sale of loans, net	-		-		-		-		26
Interest rate swap fees	381		96		357		496		409
BOLI income	1,172		1,008		256		4,378		2,967
Gain on sale of other assets, net	-		-		23		8		1,552
Other income	1,590		1,966		1,816		7,844		6,224
Total noninterest income (loss)	7,987		8,325		3,290		21,732		7,473
Noninterest Expense
Compensation and employee benefits	26,675		26,082		24,236		104,023		98,527
Occupancy and equipment	4,450		4,665		4,742		18,881		19,289
Data processing	3,681		3,754		4,020		14,998		14,899
Marketing	296		284		405		1,251		988
Professional services	1,070		1,332		663		4,258		2,515
State/municipal business and use taxes	1,247		1,235		1,180		4,907		4,889
Federal deposit insurance premium	789		796		829		3,207		3,260
Amortization of intangible assets	285		284		399		1,174		1,640
Other expense	2,990		3,183		3,066		12,867		12,289
Total noninterest expense	41,483		41,615		39,540		165,566		158,296
Income before income taxes	25,679		22,306		16,330		78,603		52,259
Income tax expense	3,442		3,137		4,402		11,071		9,001
Net income	$22,237		$19,169		$11,928		$67,532		$43,258
Basic earnings per share	$0.66		$0.56		$0.35		$1.99		$1.26
Diluted earnings per share	$0.65		$0.55		$0.34		$1.96		$1.24
Dividends declared per share	$0.24		$0.24		$0.23		$0.96		$0.92
Average shares outstanding - basic		33,957,987		33,953,810		34,109,339		33,996,149		34,465,323
Average shares outstanding - diluted		34,405,793		34,413,386		34,553,139		34,456,904		34,899,036

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands)

Average Balances, Yields, and Rates Paid:

	Year Ended December 31,
	2025			2024
	Average Balance	Interest Earned/ Paid	Average Yield/ Rate	Average Balance	Interest Earned/ Paid	Average Yield/ Rate
Interest Earning Assets:
Loans receivable(2)(3)	$4,773,760	$262,900	5.51%	$4,536,499	$247,472	5.46%
Taxable securities	1,350,278	44,966	3.33	1,653,295	54,972	3.32
Nontaxable securities	15,449	549	3.55	18,425	651	3.53
Interest earning deposits	135,603	5,821	4.29	125,036	6,617	5.29
Total interest earning assets	6,275,090	314,236	5.01%	6,333,255	309,712	4.89%
Noninterest earning assets	752,048			799,791
Total assets	$7,027,138			$7,133,046
Interest Bearing Liabilities:
Certificates of deposit	$966,429	$36,266	3.75%	$857,079	$36,922	4.31%
Savings accounts	426,124	1,154	0.27	451,528	920	0.20
Interest bearing demand and money market accounts	2,796,909	41,916	1.50	2,640,487	37,227	1.41
Total interest bearing deposits	4,189,462	79,336	1.89	3,949,094	75,069	1.90
Junior subordinated debentures	22,201	1,872	8.43	21,910	2,139	9.76
Borrowings	185,544	8,623	4.65	456,448	23,140	5.07
Total interest bearing liabilities	4,397,207	89,831	2.04%	4,427,452	100,348	2.27%
Noninterest demand deposits	1,623,952			1,669,301
Other noninterest bearing liabilities	118,300			182,121
Stockholders’ equity	887,679			854,172
Total liabilities and stockholders’ equity	$7,027,138			$7,133,046
Net interest income and spread		$224,405	2.97%		$209,364	2.62%
Net interest margin			3.58%			3.31%

Average balances are calculated using daily balances.

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 $3.7 million and $3.6 million for the year ended December 31, 2025 and 2024, respectively.

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			Year Ended
	December 31, 2025	September 30, 2025	December 31, 2024	December 31, 2025	December 31, 2024
Allowance for Credit Losses on Loans:
Balance, beginning of period	$53,974	$52,529	$51,391	$52,468	$47,999
(Reversal of) provision for credit losses on loans	(909)	1,563	1,104	1,508	6,983
Charge-offs:
Commercial business	(565)	(195)	(4)	(1,436)	(2,953)
Residential real estate	-	(27)	-	(27)	-
Consumer	(75)	(152)	(92)	(485)	(538)
Total charge-offs	(640)	(374)	(96)	(1,948)	(3,491)
Recoveries:
Commercial business	140	219	48	403	855
Residential real estate	-	1	-	1	-
Consumer	19	36	21	152	122
Total recoveries	159	256	69	556	977
Net (charge-offs) recoveries	(481)	(118)	(27)	(1,392)	(2,514)
Balance, end of period	$52,584	$53,974	$52,468	$52,584	$52,468
Net charge-offs on loans to average loans receivable annualized	0.04%	0.01%	- %	0.03%	0.06%

	December 31, 2025	September 30, 2025	December 31, 2024
Nonperforming Assets:
Nonaccrual loans:
Commercial business	$6,886	$3,418	$3,919
Residential real estate	1,196	1,290	-
Real estate construction and land development	12,408	12,760	-
Consumer	486	144	160
Total nonaccrual loans	20,976	17,612	4,079
Accruing loans past due 90 days or more	194	3,338	1,195
Total nonperforming loans	21,170	20,950	5,274
Other real estate owned	-	-	-
Nonperforming assets	$21,170	$20,950	$5,274
ACL on loans to:
Loans receivable	1.10%	1.13%	1.09%
Nonaccrual loans	250.69%	306.46%	1,286.30%
Nonaccrual loans to loans receivable	0.44%	0.37%	0.08%
Nonperforming loans to loans receivable	0.44%	0.44%	0.11%
Nonperforming assets to total assets	0.30%	0.30%	0.07%

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)

	Quarter Ended
	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Earnings:
Net interest income	$58,361	$57,371	$54,983	$53,690	$53,763
(Reversal of) provision for credit losses	(814)	1,775	956	51	1,183
Noninterest income	7,987	8,325	1,517	3,903	3,290
Noninterest expense	41,483	41,615	41,085	41,383	39,540
Net income	22,237	19,169	12,215	13,911	11,928
Basic earnings per share	$0.66	$0.56	$0.36	$0.41	$0.35
Diluted earnings per share	$0.65	$0.55	$0.36	$0.40	$0.34
Adjusted diluted earnings per share	$0.66	$0.56	$0.53	$0.49	$0.51
Average Balances:
Loans receivable	$4,770,300	$4,762,648	$4,768,558	$4,793,917	$4,717,748
Total investment securities	1,301,526	1,329,616	1,390,064	1,443,662	1,530,348
Total interest earning assets	6,223,303	6,258,446	6,286,309	6,333,697	6,367,371
Total assets	6,954,110	7,006,140	7,046,943	7,103,227	7,149,294
Total interest bearing deposits	4,250,589	4,217,041	4,176,052	4,112,343	4,011,793
Total noninterest demand deposits	1,635,539	1,625,945	1,602,987	1,631,268	1,703,357
Stockholders' equity	911,454	892,280	879,808	866,629	868,308
Financial Ratios:
Return on average assets	1.27%	1.09%	0.70%	0.79%	0.66%
Return on average common equity	9.68	8.52	5.57	6.51	5.46
Return on average tangible common equity (1)(2)	13.33	11.86	7.85	9.22	7.81
Adjusted return on average tangible common equity (1)(2)	13.51	12.16	11.59	11.21	11.59
Efficiency ratio	62.5	63.3	72.7	71.9	69.3
Adjusted efficiency ratio	61.9	62.4	64.9	67.3	64.4
Noninterest expense to average total assets	2.37	2.36	2.34	2.36	2.20
Net interest spread	3.15	3.03	2.89	2.79	2.66
Net interest margin	3.72	3.64	3.51	3.44	3.36

Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)

	As of or for the Quarter Ended
	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Select Balance Sheet:
Total assets	$6,967,350	$7,011,879	$7,070,641	$7,129,862	$7,106,278
Loans receivable	4,783,266	4,769,160	4,774,855	4,764,848	4,802,123
Total investment securities	1,281,629	1,312,857	1,346,274	1,413,903	1,467,679
Total deposits	5,920,199	5,857,464	5,784,413	5,845,335	5,684,613
Noninterest demand deposits	1,597,650	1,617,909	1,584,231	1,621,890	1,654,955
Stockholders' equity	921,504	904,064	888,212	881,515	863,527
Financial Measures:
Book value per share	$27.13	$26.62	$26.16	$25.85	$25.40
Tangible book value per share	19.98	19.46	18.99	18.70	18.22
Stockholders' equity to total assets	13.2%	12.9%	12.6%	12.4%	12.2%
Tangible common equity to tangible assets	10.1	9.8	9.4	9.3	9.0
Loans to deposits ratio	80.8	81.4	82.5	81.5	84.5
Regulatory Capital Ratios:
Common equity tier 1 capital ratio	12.7%	12.4%	12.2%	12.2%	12.0%
Leverage ratio	10.8	10.5	10.3	10.2	10.0
Tier 1 capital ratio	13.1	12.8	12.6	12.6	12.4
Total capital ratio	14.1	13.8	13.6	13.6	13.3
Credit Quality Metrics:
ACL on loans to:
Loans receivable	1.10%	1.13%	1.10%	1.09%	1.09%
Nonaccrual loans	250.7	306.5	532.5	1,175.3	1,286.3
Nonaccrual loans to loans receivable	0.44	0.37	0.21	0.09	0.08
Nonperforming loans to loans receivable	0.44	0.44	0.39	0.09	0.11
Nonperforming assets to total assets	0.30	0.30	0.26	0.06	0.07
Net charge-offs on loans to average loans receivable	0.04	0.01	0.04	0.03	0.00
Criticized Loans by Credit Quality Rating:
Special mention	$71,122	$100,160	$114,146	$113,704	$110,725
Substandard	116,823	94,377	99,715	64,387	68,318
Other Metrics:
Number of branches	50	50	50	50	50
Deposits per branch	$118,404	$117,149	$115,688	$116,907	$113,692
Average number of full-time equivalent employees	742	749	745	757	751
Average assets per full-time equivalent employee	9,372	9,354	9,459	9,383	9,520

See Non-GAAP Financial Measures section herein.

Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.

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.

	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Diluted Earnings per Share and Adjusted Diluted Earnings per Share:
Net income (GAAP)	$22,237	$19,169	$12,215	$13,911	$11,928
Exclude loss on sale of investment securities, net	-	-	6,854	3,887	3,903
Exclude merger related costs	385	635	-	-	-
Exclude gain on sale of premises and equipment	-	-	(5)	(3)	(23)
Exclude tax effect of adjustment	(81)	(133)	(1,438)	(816)	(815)
Exclude BOLI restructuring costs included in BOLI Income	-	-	-	-	508
Exclude tax expense related to BOLI restructuring	-	-	515	-	2,371
Adjusted net income (non-GAAP)	$22,541	$19,671	$18,141	$16,979	$17,872
Average number of diluted shares outstanding	34,405,793	34,413,386	34,446,710	34,506,238	34,553,139
Diluted earnings per share (GAAP)	$0.65	$0.55	$0.36	$0.40	$0.34
Adjusted diluted earnings per share (non-GAAP)	$0.66	$0.56	$0.53	$0.49	$0.51

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.

	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP)	$921,504	$904,064	$888,212	$881,515	$863,527
Exclude intangible assets	(242,918)	(243,203)	(243,487)	(243,789)	(244,092)
Tangible common equity (non-GAAP)	$678,586	$660,861	$644,725	$637,726	$619,435
Total assets (GAAP)	$6,967,350	$7,011,879	$7,070,641	$7,129,862	$7,106,278
Exclude intangible assets	(242,918)	(243,203)	(243,487)	(243,789)	(244,092)
Tangible assets (non-GAAP)	$6,724,432	$6,768,676	$6,827,154	$6,886,073	$6,862,186
Stockholders' equity to total assets (GAAP)	13.2%	12.9%	12.6%	12.4%	12.2%
Tangible common equity to tangible assets (non-GAAP)	10.1%	9.8%	9.4%	9.3%	9.0%
Shares outstanding	33,963,500	33,956,738	33,953,194	34,105,516	33,990,827
Book value per share (GAAP)	$27.13	$26.62	$26.16	$25.85	$25.40
Tangible book value per share (non-GAAP)	$19.98	$19.46	$18.99	$18.70	$18.22

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
	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Return on Average Tangible Common Equity, annualized:
Net income (GAAP)	$22,237	$19,169	$12,215	$13,911	$11,928
Add amortization of intangible assets	285	284	302	303	399
Exclude tax effect of adjustment	(60)	(60)	(63)	(64)	(84)
Tangible net income (non-GAAP)	$22,462	$19,393	$12,454	$14,150	$12,243
Tangible net income (non-GAAP)	$22,462	$19,393	$12,454	$14,150	$12,243
Exclude loss on sale of investment securities, net	-	-	6,854	3,887	3,903
Exclude merger related costs	385	635	-	-	-
Exclude gain on sale of premises and equipment	-	-	(5)	(3)	(23)
Exclude tax effect of adjustment	(81)	(133)	(1,438)	(816)	(815)
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)	$22,766	$19,895	$18,380	$17,218	$18,187
Average stockholders' equity (GAAP)	$911,454	$892,280	$879,808	$866,629	$868,308
Exclude average intangible assets	(243,069)	(243,350)	(243,651)	(243,945)	(244,302)
Average tangible common stockholders' equity (non-GAAP)	$668,385	$648,930	$636,157	$622,684	$624,006
Return on average common equity, annualized (GAAP)	9.68%	8.52%	5.57%	6.51%	5.46%
Return on average tangible common equity, annualized (non-GAAP)	13.33%	11.86%	7.85%	9.22%	7.81%
Adjusted return on average tangible common equity, annualized (non-GAAP)	13.51%	12.16%	11.59%	11.21%	11.59%

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
	December 31, 2025	September 30, 2025	June 30, 2025	March 31, 2025	December 31, 2024
Adjusted Efficiency Ratio :
Total noninterest expense (GAAP)	$41,483	$41,615	$41,085	$41,383	$39,540
Exclude merger related costs	$385	$635	$ -	$ -	$ -
Adjusted noninterest expense (non-GAAP)	$41,098	$40,980	$41,085	$41,383	$39,540
Net interest income (GAAP)	$58,361	$57,371	$54,983	$53,690	$53,763
Total noninterest income (GAAP)	$7,987	$8,325	$1,517	$3,903	$3,290
Exclude loss on sale of investment securities, net	-	-	6,854	3,887	3,903
Exclude gain on sale of premises and equipment	-	-	(5)	(3)	(23)
Exclude BOLI restructuring costs included in BOLI Income	-	-	-	-	508
Adjusted total noninterest income (non-GAAP)	$7,987	$8,325	$8,366	$7,787	$7,678
Efficiency ratio (GAAP)	62.5%	63.3%	72.7%	71.9%	69.3%
Adjusted efficiency ratio (non-GAAP)	61.9%	62.4%	64.9%	67.3%	64.4%

Contacts
Bryan McDonald, President and Chief Executive Officer, (360) 943-1500
Don Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500