The Zacks Savings and Loan industry is gaining from falling interest rates and easing lending standards. With relatively lower rates, funding costs is gradually stabilizing, boosting net interest income (NII) and net interest margin (NIM). The digitization of operations will also support industry players. Despite several credit quality metrics creeping above the pre-pandemic levels, lower rates will likely aid repayment capacity. Hence, industry players like ServisFirst Bancshares Inc. (SFBS) , WSFS Financi ...

Core Viewpoint - Heritage Financial Corporation has successfully completed the merger with Olympic Bancorp, Inc. and Kitsap Bank, enhancing its market presence and customer base in the Pacific Northwest [1][2]. Group 1: Merger Details - The merger was finalized on January 31, 2026, integrating Olympic Bancorp into Heritage and Kitsap Bank into Heritage Bank [1]. - Heritage will issue a total of 7,167,600 shares of its common stock as part of the merger agreement, with Olympic shareholders receiving 45.0 shares of Heritage's common stock for each share they hold [3]. Group 2: Company Overview - Heritage Financial Corporation is based in Olympia and operates Heritage Bank, a full-service commercial bank with branches in Washington, Oregon, and Idaho [4]. - The bank also operates under the names Whidbey Island Bank and Kitsap Bank for the branches acquired in the merger [4].

Core Viewpoint - Heritage Financial Corporation (HFWA) has demonstrated strong financial performance, with significant earnings and revenue growth, despite minor fluctuations in stock price [3][4][6]. Financial Performance - HFWA reported an earnings per share (EPS) of $0.66 for the fourth quarter, exceeding the Zacks Consensus Estimate of $0.57 by 15.79% [3][6]. - The company's revenue for the quarter ending December 2025 was $66.35 million, surpassing the Zacks Consensus Estimate by 0.99% and showing an increase from $60.96 million in the same quarter the previous year [4][6]. Stock Performance - HFWA's stock price has seen fluctuations, with a 52-week high of $28.35 and a low of $19.84 [5][6]. - The current stock price is $26.35, reflecting a slight decrease of 0.87% or $0.23 from previous levels [2]. - The company's market capitalization is approximately $895 million, with a trading volume of 329,362 shares on the NASDAQ exchange [5][6]. Executive Transactions - On January 26, 2026, Wilson Kelli Ann, the Executive Vice President and Chief Banking Officer, sold 1,900 shares at approximately $26.48 per share, leaving her with 3,778 shares [2].

Financial Data and Key Metrics Changes - Adjusted diluted earnings per share increased by 18% quarter-over-quarter and 29% year-over-year, with an adjusted return on assets (ROA) improving to 1.29% from 0.99% in the previous year [3] - Net interest income rose by $1 million or 1.7% from the prior quarter, driven by a higher interest margin [7] - The net interest margin increased to 3.7% from 3.64% in the prior quarter and from 3.36% in the fourth quarter of the previous year [8][9] Business Line Data and Key Metrics Changes - Total loan balances increased by $14 million in Q4, with the loan portfolio growing by 5.54% [5] - Total deposits increased by $63 million in Q4, primarily due to a $100 million increase in interest-bearing demand deposits [5] - Investment balances decreased by $31 million, with the yield on the investment portfolio dropping to 3.26% from 3.35% in the previous quarter [6] Market Data and Key Metrics Changes - The commercial lending group closed $254 million in new loan commitments, down from $317 million in the previous quarter [15] - The commercial loan pipeline ended the fourth quarter at $468 million, down from $511 million in the previous quarter [15] - Average interest rates for new commercial loans were 6.56%, down 11 basis points from the previous quarter [17] Company Strategy and Development Direction - The company plans to close the merger with Olympic Bancorp at the end of January, which is expected to enhance profitability and position the company for growth in the Puget Sound market [4] - The focus remains on integrating Olympic and ensuring successful operations while exploring future M&A opportunities [73] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating future challenges and capitalizing on growth opportunities, with expectations for loan growth to return to historical levels in 2026 [16][18] - The company anticipates continued improvement in net interest margins and deposit costs due to recent rate cuts [22] Other Important Information - The company reported a reversal of provision for credit losses of $18,000 in Q4, attributed to a change in the loan portfolio mix [8] - Non-accrual loans totaled $21 million at year-end, representing 0.44% of total loans, an increase from 0.37% at the end of the previous quarter [10] Q&A Session Summary Question: Outlook for adjustable rate opportunity and margin - Management indicated that despite recent rate cuts, loan yields slightly grew, and they expect further improvement in margins without the merger [21][22] Question: Loan growth expectations and industry focus - Management expects loan growth to return to low single digits in Q1 and upper single digits as the year progresses, with visibility improving in the loan pipeline [25][31] Question: Operating expense growth and merger-related expenses - Management anticipates approximately $20 million-$21 million in merger-related expenses, with a projected run rate for Q2 and Q3 around $56 million [33][34] Question: Capital priorities post-merger - The primary focus is on closing the merger, which will utilize about 100 basis points of capital, with potential for buybacks considered after the deal closes [51][52] Question: Competition in loan yields and deposit costs - Management noted that competition remains strong but consistent, with expectations for deposit costs to continue decreasing [44][48]

Financial Data and Key Metrics Changes - Adjusted diluted earnings per share increased by 18% quarter-over-quarter and 29% year-over-year, with an adjusted return on assets (ROA) improving to 1.29% from 0.99% in the previous year [3] - Net interest income rose by $1 million or 1.7% from the prior quarter, driven by a higher interest margin [7] - The net interest margin increased to 3.7% from 3.64% in the prior quarter and from 3.36% in the fourth quarter of the previous year [8] Business Line Data and Key Metrics Changes - Total loan balances increased by $14 million in Q4, with the loan portfolio growing by 5.54% [5] - Total deposits increased by $63 million in Q4, primarily due to a $100 million increase in interest-bearing demand deposits [5] - Investment balances decreased by $31 million, with the yield on the investment portfolio dropping to 3.26% from 3.35% in the previous quarter [6] Market Data and Key Metrics Changes - The commercial lending group closed $254 million in new loan commitments, down from $317 million in the previous quarter [15] - The commercial loan pipeline ended the fourth quarter at $468 million, down from $511 million in the previous quarter [15] - Average interest rates for new commercial loans decreased to 6.56%, down 11 basis points from the previous quarter [17] Company Strategy and Development Direction - The company plans to close the merger with Olympic Bancorp at the end of January, which is expected to enhance profitability and position the company for growth in the Puget Sound market [4] - The focus remains on integrating Olympic and ensuring successful execution of the merger while continuing to explore additional M&A opportunities [73] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for margin improvement over the next year or two, particularly with the merger [22] - The company anticipates a return to loan growth at more historical levels in 2026, following a period of elevated loan payoffs [16] - Credit quality remains strong, with non-accrual loans at 0.44% of total loans, and management is confident in their credit underwriting practices [10][12] Other Important Information - The company recognized a reversal of provision for credit losses of $18,000 in Q4 due to a change in the mix of the loan portfolio [8] - Non-interest expenses decreased due to lower merger-related expenses, although compensation and benefits expenses increased due to incentive compensation accruals [9] Q&A Session Summary Question: Outlook for adjustable rate opportunity - Management indicated potential for nearly a 200 basis point increase in adjustable rates if repriced, with expectations for improved loan yields in the absence of rate cuts [20][22] Question: Loan growth expectations for 2026 - Management expects loan growth to return to low single digits in Q1, moving to upper single digits based on customer demand [25] Question: Operating expense growth expectations - Management anticipates approximately $20-$21 million in merger-related expenses, with a projected run rate for Q2 and Q3 around $56 million [33] Question: Capital priorities in 2026 - The primary focus is on closing the Olympic transaction, which will utilize about 100 basis points of capital, with potential for buybacks considered post-merger [51] Question: Trends in credit quality - Management noted no significant correlation in recent downgrades within the C&I category, attributing them to timing rather than broader industry issues [60]

Financial Data and Key Metrics Changes - Adjusted diluted earnings per share increased by 18% quarter-over-quarter and 29% year-over-year, reaching a new high [3] - Return on assets (ROA) improved to 1.29% from 0.99% in Q4 2024 [3] - Net interest income rose by $1 million or 1.7% from the prior quarter, driven by a higher interest margin [6] - Net interest margin increased to 3.7% from 3.64% in the prior quarter and from 3.36% in Q4 2024 [7] - Total loan balances increased by $14 million in Q4, with a loan portfolio growth of 5.54% [5] Business Line Data and Key Metrics Changes - Commercial lending closed $254 million in new loan commitments, down from $317 million last quarter [13] - Total new loan production was $271 million, offset by elevated payoffs and prepaids [13] - The yield on the investment portfolio decreased to 3.26% in Q4 compared to 3.35% in Q3 [6] Market Data and Key Metrics Changes - Total deposits increased by $63 million in Q4, primarily due to a $100 million increase in interest-bearing demand deposits [5] - The cost of interest-bearing demand deposits decreased to 1.8% from 1.89% in the prior quarter [5] Company Strategy and Development Direction - The company plans to close the merger with Olympic Bancorp at the end of January, which is expected to enhance profitability and growth in the Puget Sound market [4] - The company aims to resume loan growth at more historical levels in 2026, following a period of elevated loan payoffs [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating future challenges and capitalizing on growth opportunities [16] - The company anticipates continued improvement in net interest margin and deposit costs due to recent rate cuts [20][21] Other Important Information - The company remains above capital life thresholds, with a tangible common equity (TCE) ratio of 10.1%, up from 9.8% in the prior quarter [8] - Non-accrual loans totaled $21 million, representing 0.44% of total loans, an increase from 0.37% at the end of Q3 [9] Q&A Session Summary Question: Margin outlook given adjustable rate opportunities - Management noted that despite recent rate cuts, loan yields slightly grew in Q4, and they expect further improvement in margins without the merger [20][21] Question: Loan growth expectations for 2026 - Management indicated a potential for lower payoffs and a return to positive net advances in 2026, with good visibility in the loan pipeline [29] Question: Operating expense growth expectations - Management expects approximately $20-$21 million in merger-related expenses, with a run rate for Q2 and Q3 projected in the mid-$56 million range [32][33] Question: Thoughts on crossing the $10 billion asset threshold - Management stated that they are several years out from crossing the $10 billion mark on an organic basis, focusing on integrating Olympic first [35][36] Question: Competition in loan yields - Management acknowledged a competitive market for commercial loans but did not see any significant changes in competition levels [42][44] Question: Capital priorities in 2026 - Management highlighted the importance of closing the Olympic transaction and indicated potential for buybacks post-merger [48][49]

Financial Performance - Net income for Q4 2025 was $22.2 million, an increase of 15.6% from $19.2 million in Q3 2025 and 86.1% from $11.9 million in Q4 2024[3] - Diluted earnings per share rose to $0.65 in Q4 2025, compared to $0.55 in Q3 2025 and $0.34 in Q4 2024, marking a 29% year-over-year growth[3] - Net income for the quarter was $22,237,000, representing a 15.5% increase from $19,169,000 in the same quarter of the previous year[40] - Basic earnings per share increased to $0.66 from $0.56 year-over-year, marking a growth of 17.9%[40] - Net income (GAAP) for Q4 2025 was $22,237 million, an increase from $19,169 million in Q3 2025, representing a growth of 10.6%[60] - Tangible net income (non-GAAP) for Q4 2025 reached $22,462 million, up from $19,393 million in Q3 2025, marking an increase of 15.7%[60] - Adjusted tangible net income (non-GAAP) for Q4 2025 was $22,766 million, compared to $19,895 million in Q3 2025, reflecting a growth of 14.7%[60] Interest Income and Margin - Net interest income increased by $1.0 million, or 1.7%, from Q3 2025, with a net interest margin of 3.72%, up 8 basis points from 3.64%[4] - Net interest income rose by $4.6 million, or 8.6%, during the fourth quarter of 2025 compared to the same period in the prior year[23] - Total interest income for the fourth quarter of 2025 was $58.361 million, with a net interest margin of 3.72%[25] - Net interest income for Q4 2025 was $58,361,000, an increase from $57,371,000 in Q3 2025 and $54,983,000 in Q2 2025[46] - The net interest margin improved to 3.58% for the year ended December 31, 2025, compared to 3.31% in the previous year[42] Deposits and Loans - Total deposits grew by $62.7 million, or 1.1%, reaching $5.92 billion at the end of Q4 2025[10] - Loans receivable increased by $14.1 million, or 0.3%, during Q4 2025, with new loans funded totaling $173.1 million[8] - Non-maturity deposits rose by $75.1 million, or 1.5%, primarily due to increased customer balances in interest-bearing demand accounts[10] - Total deposits rose to $5,920,199 thousand, an increase of 1.07% from $5,857,464 thousand in the previous quarter[38] Expenses and Efficiency - Noninterest expense decreased by $132,000, or 0.3%, to $41.5 million in Q4 2025 compared to Q3 2025[29] - The efficiency ratio improved to 62.5% from 63.3% in Q3 2025, indicating better operational efficiency[4] - Total noninterest expense for the quarter was $41,483,000, slightly down from $41,615,000 in the previous year[40] - Adjusted efficiency ratio (non-GAAP) improved to 61.9% in Q4 2025 from 62.4% in Q3 2025, indicating enhanced operational efficiency[63] Tax and Shareholder Returns - Income tax expense increased by $305,000 to $3.4 million in Q4 2025, driven by higher pre-tax income[32] - The effective income tax rate for Q4 2025 was 13.4%, down from 27.0% in Q4 2024[33] - The Company declared a quarterly cash dividend of $0.24 per share, payable on February 11, 2026[34] Asset Quality and Capital - The allowance for credit losses on loans decreased to 1.10% at December 31, 2025, from 1.13% at September 30, 2025, with a $0.9 million reversal of provision for credit losses recorded[14] - Classified loans increased by $22.4 million, raising the percentage of classified loans to 2.4% at December 31, 2025, compared to 2.0% at September 30, 2025[17] - Total stockholders' equity rose by $17.4 million, or 1.9%, to $921.5 million at December 31, 2025, driven by $22.2 million in net income for the quarter[12] - The common equity tier 1 capital ratio improved to 12.7% from 12.4%, indicating stronger capital adequacy[48] Future Outlook - The company received regulatory and shareholder approvals for the acquisition of Olympic Bancorp, expected to close by January 31, 2026[4] - The Company will hold an earnings conference call on January 22, 2026, at 10:00 a.m. Pacific time[35]

Core Insights - The company reported strong performance in Q3, with significant growth in loans and deposits, alongside margin expansion and effective expense management [3][23]. Financial Performance - Total deposits increased by $193 million in the quarter, with $83 million in noninterest-bearing deposits. The percentage of CDs to total deposits rose slightly to 16.5% from 16% [1]. - Loan balances grew by $147 million, with yields on the loan portfolio at 5.60%, an increase of 8 basis points from Q2 [2][19]. - Net interest income rose by $1.8 million, a 3.6% increase, attributed to higher average earning assets and net interest margin, which improved to 3.33% from 3.29% [7]. - The cost of interest-bearing deposits was 2.02% for Q3, slightly down from 2.03% in September [5]. Credit Quality - Total charge-offs were just under $2.7 million, primarily linked to one owner-occupied CRE loan, with net charge-offs of just over $2.5 million [11][12]. - Nonaccrual loans totaled $4.3 million, representing 0.09% of total loans, a slight increase from 0.08% at the end of Q2 [12][15]. - Criticized loans decreased by $5 million or 2.9% during the quarter, indicating stable credit quality [15]. Loan Production and Pipeline - The commercial lending group closed $253 million in new loan commitments, a 16% increase from the previous quarter [18]. - The loan pipeline ended at $491 million, up from $480 million last quarter, indicating strong demand [19]. - The average interest rate for new commercial loans was 6.53%, down 35 basis points from the previous quarter [21]. Strategic Initiatives - The company announced the hiring of Nick Bley as the new Chief Operating Officer, aimed at enhancing operations and technology [22]. - The company is focused on maintaining a strong capital position, with a TCE ratio of 9.1%, up from 8.9% in the prior quarter [9][10]. Market Outlook - The company anticipates stable net interest margin in Q4, with potential for expansion in 2025 as loan repricing occurs [27][40]. - The company is strategically positioned to leverage growth opportunities while managing risks effectively [24][23].

INVESTOR PRESENTATION Q4 2025 FORWARD LOOKING STATEMENTS This presentation contains "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 ...

Core Insights - Heritage Financial (HFWA) reported a revenue of $66.35 million for the quarter ended December 2025, marking an 8.8% year-over-year increase and a surprise of +0.99% over the Zacks Consensus Estimate of $65.7 million [1] - The earnings per share (EPS) for the same period was $0.66, compared to $0.51 a year ago, resulting in a surprise of +15.79% over the consensus EPS estimate of $0.57 [1] Financial Performance Metrics - Net Interest Margin was reported at 3.7%, matching the average estimate from three analysts [4] - The Efficiency Ratio was 62.5%, slightly better than the estimated 63.1% by three analysts [4] - Total Nonperforming Assets amounted to $21.17 million, exceeding the two-analyst average estimate of $16.75 million [4] - Total Nonaccrual Loans were also reported at $21.17 million, higher than the two-analyst average estimate of $14.25 million [4] - Average Balance of Total Interest Earning Assets was $6.22 billion, slightly below the $6.27 billion average estimate from two analysts [4] - Net charge-offs on loans to average loans receivable were reported at 0%, compared to the two-analyst average estimate of 0.1% [4] - Total Noninterest Income was $7.99 million, slightly below the three-analyst average estimate of $8 million [4] - Net Interest Income was reported at $58.36 million, exceeding the average estimate of $57.71 million from three analysts [4] Stock Performance - Shares of Heritage Financial have returned +7.1% over the past month, outperforming the Zacks S&P 500 composite's +0.7% change [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]