Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 5.7% quarter-over-quarter and 24.4% year-over-year [3] - Return on assets (ROA) improved to 1.11% from 0.87% in Q3 2024 [3] - Net interest income rose by $2.4 million, or 4.3% from the prior quarter, primarily due to a higher net interest margin [5][6] - Net interest margin increased to 3.64% from 3.51% in the prior quarter and from 3.30% in Q3 2024 [6][8] - Total deposits increased by $73 million in Q3 [4][16] Business Line Data and Key Metrics Changes - Total loan balances decreased by $5.7 million, despite an increase in loan originations [4] - Yields in the loan portfolio were 5.53%, up three basis points from Q2 [4] - Non-interest expense increased by $530,000, mainly due to higher compensation and benefits expenses [6][8] - New commercial loan commitments were $317 million, up from $248 million in the previous quarter [13] Market Data and Key Metrics Changes - Non-accrual loans totaled $17.6 million, representing 0.37% of total loans, up from 0.21% at the end of Q2 [9] - Non-performing loans increased to 0.44% of total loans from 0.39% in the previous quarter [10] - Criticized loans decreased by over $19 million during the quarter [10] Company Strategy and Development Direction - The pending merger with Olympic Bank Corp is expected to enhance profitability and position the company for growth in the Puget Sound market [3][17] - The company aims to maintain a loan-to-deposit ratio around 85% and is looking for opportunities to deploy more assets into loans [50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in credit quality despite economic volatility, noting that no material impact has been observed [12] - Expectations for organic loan growth in 2026 are mid to high single digits, with a return to more traditional growth rates anticipated [24] - The company is closely monitoring the increase in non-performing loans but remains optimistic about credit metrics [11][12] Other Important Information - The company halted lost trade activity and did not purchase any securities in Q3 to preserve capital for the pending acquisition [5][8] - Regulatory capital ratios remain comfortably above well-capitalized thresholds, with a tangible common equity (TCE) ratio of 9.8% [8] Q&A Session Summary Question: Spot cost of deposits and NIM for September - The spot rate on interest-bearing deposits was 1.87%, and the NIM for September was 3.66% [21] Question: Opportunities to reduce rates on non-maturity deposits - There is potential to reduce rates on approximately $1 billion in exception-priced deposits currently costing close to 3% [22] Question: Organic loan growth expectations for 2026 - Expected to return to mid to high single digits, with positive net advances anticipated as payoffs normalize [24] Question: Deposit growth factors - Growth is attributed to both seasonal factors and effective execution by the team [30] Question: Competition in the market - Competition remains strong, particularly for operating relationships, with some new accounts having higher average costs [36] Question: Progress on the Olympic acquisition - The acquisition is on track for early Q1 closure, with no concerns reported [37] Question: Capital priorities post-acquisition - Capital preservation is expected during the transaction costs, with future buybacks uncertain [49] Question: Loan-to-deposit ratio management - The goal is to increase the loan-to-deposit ratio back to 85% [50]

Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 5.7% compared to the previous quarter and by 24.4% compared to 2024 [4] - Return on assets (ROA) improved to 1.11% from 0.87% in 2024 [4] - Net interest income rose by $2.4 million or 4.3% from the prior quarter, driven by a higher net interest margin [7][21] - Net interest margin increased to 3.64% from 3.51% in the prior quarter and from 3.3% in 2024 [8] Business Line Data and Key Metrics Changes - Total loan balances decreased by $5.7 million in Q3, despite an increase in loan originations [5] - Loan yields in the portfolio were 5.53%, up three basis points from Q2 [5] - Total deposits increased by $73 million in Q3, with noninterest-bearing deposits rising by $33.7 million [6] - Investment balances decreased by $33 million due to expected principal cash flows [7] Market Data and Key Metrics Changes - The average interest rate for new commercial loans was 6.67%, up 12 basis points from the previous quarter [20] - The deposit pipeline ended the quarter at $149 million, compared to $132 million in the second quarter [19] Company Strategy and Development Direction - The pending merger with Olympic Bancorp is expected to enhance profitability and position the company for growth in the Puget Sound market [4] - The company aims to navigate economic challenges and capitalize on growth opportunities [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength and stability of credit quality metrics despite economic volatility [15] - The company anticipates organic loan growth returning to mid- to high single digits in 2026 [30] Other Important Information - Non-accrual loans totaled $17.6 million, representing 0.37% of total loans, an increase from 0.21% at the end of Q2 [11] - The company recognized $635,000 in merger-related expenses in Q3 [9] Q&A Session Summary Question: What is the spot cost of deposits at September 30 and the NIM for September? - The spot rate on interest-bearing deposits was 1.87%, and the NIM for September was $3.66 million [27] Question: How much opportunity is there to reduce rates on the non-maturity side? - There is approximately $1 billion in exception priced deposits costing close to 3%, and the company expects to work those down over time [29] Question: What are the expectations for organic loan growth in 2026? - The company expects to return to traditional growth rates of mid- to high single digits in 2026, with a positive outlook on loan demand [30] Question: How has competition been trending in the markets? - Competition remains strong, particularly for operating relationships, with some new accounts having higher average costs [50] Question: What is the status of the Olympic acquisition? - The acquisition is progressing as planned, with no concerns affecting the estimated closing date in early Q1 [51] Question: How are capital priorities expected to change post-acquisition? - The company will likely preserve capital during the transaction costs and upfront dilution, with future capital priorities to be assessed post-acquisition [70]

Financial Performance - Heritage Financial Corporation's net income for Q3 2025 was $192 million[19], with a net interest margin of 364%[19] - The company's ROAE was 852% and ROATCE was 1186% for Q3 2025[19] Adjusted ROATCE was 1216%[19] - The efficiency ratio was 633%, and the adjusted efficiency ratio was 624% for Q3 2025[19] - The company's leverage ratio was 105% and the total capital ratio was 138%[19] Loan Portfolio - Loans receivable totaled $48 billion as of September 30, 2025[19] - Real estate, rental, and leasing comprised 561% of commercial business loans by industry exposure, totaling $2122 million[46] - Nonaccrual loans to loans receivable was 037% in Q3 2025[56] Deposits - Deposits totaled $59 billion as of September 30, 2025[19] - Noninterest demand deposits were 276% of total deposits as of September 30, 2025[22] - The cost of total deposits was 137%[22] Investment Portfolio - The investment portfolio yield was 335%[86] - Investment cashflows are estimated to be $561 million through Q3 of 2028[88] M&A Activity - On September 25, 2025, Heritage Financial Corporation entered into a definitive agreement with Olympic Bancorp, Inc, which has $17 billion in assets[22, 28]

Core Viewpoint - Heritage Financial Corporation is a regional bank showing signs of potential recovery and maintaining a stable consensus price target, reflecting analysts' confidence in its performance and growth potential [2][6]. Company Overview - Heritage Financial Corporation, trading on NASDAQ under the symbol HFWA, is based in Olympia, Washington, providing a range of financial services including personal and business banking, mortgage lending, and wealth management [1]. Price Target and Analyst Sentiment - Analysts have maintained a stable consensus price target for HFWA at $29 over the past month and quarter, up from $27.5 a year ago, indicating steady confidence in the company's performance [2]. - Analyst Gordon McGuire from Stephens has set a lower price target of $26, suggesting a more cautious outlook despite the overall stability [2][5]. Earnings Performance - In Q2 2025, Heritage Financial reported earnings of $0.53 per share, exceeding the Zacks Consensus Estimate of $0.50 and improving from $0.45 per share in the same quarter last year, showcasing a strong track record of exceeding expectations [4][6]. - The upcoming third-quarter earnings report, scheduled for October 23, 2025, is highly anticipated, with expectations of earnings growth and potential for another earnings beat [3][5]. Technical Indicators - A hammer chart pattern indicates support for the stock, alongside upward trends in earnings estimate revisions, suggesting a possible trend reversal [3].

Core Insights - Heritage Financial (HFWA) reported quarterly earnings of $0.56 per share, matching the Zacks Consensus Estimate, and showing an increase from $0.33 per share a year ago [1] - The company achieved revenues of $65.7 million for the quarter ended September 2025, exceeding the Zacks Consensus Estimate by 0.97% and up from $54.79 million year-over-year [2] - The stock has underperformed the market, losing about 6.2% year-to-date compared to the S&P 500's gain of 13.9% [3] Earnings Performance - Heritage Financial's earnings for the previous quarter were initially expected to be $0.50 per share, but the actual earnings were $0.53, resulting in a surprise of +6% [1] - Over the last four quarters, the company has surpassed consensus EPS estimates three times [1] Revenue Performance - The company has topped consensus revenue estimates two times over the last four quarters [2] - Current consensus EPS estimate for the upcoming quarter is $0.56 on revenues of $65.93 million, and for the current fiscal year, it is $2.11 on revenues of $244.6 million [7] Market Outlook - The sustainability of the stock's price movement will depend on management's commentary during the earnings call [3] - The Zacks Rank for Heritage Financial is currently 1 (Strong Buy), indicating expectations for the stock to outperform the market in the near future [6] Industry Context - The Financial - Savings and Loan industry, to which Heritage Financial belongs, is currently in the bottom 30% of the Zacks industry rankings [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Core Insights - Heritage Financial Corporation reported a net income of $19.2 million for Q3 2025, a significant increase from $12.2 million in Q2 2025 and $11.4 million in Q3 2024, with diluted earnings per share rising to $0.55 from $0.36 and $0.33 respectively [1][6][24] Financial Performance - Net interest income increased by 8.3% year-over-year, driven by margin expansion as loan yields rose and deposit costs decreased [2][24] - The net interest margin improved to 3.64%, up 13 basis points from 3.51% in Q2 2025 and 34 basis points from 3.30% in Q3 2024 [21][24] - Total assets decreased slightly to $7.01 billion from $7.07 billion in Q2 2025, while total deposits increased by $73.1 million, or 1.3%, to $5.86 billion [3][10] Loan and Deposit Trends - Loans receivable decreased by $5.7 million, or 0.1%, primarily due to elevated prepayments, although new loan production increased to $174.5 million from $139.9 million in Q2 2025 [7][9] - Noninterest demand deposits rose by 2.1%, contributing to an overall increase in non-maturity deposits of $104.5 million, or 2.2% [10][11] Acquisition Plans - The company is preparing for the acquisition of Olympic Bancorp and its subsidiary, Kitsap Bank, expected to close in Q1 2026, which is anticipated to enhance the balance sheet and profitability [2][6] Noninterest Income and Expenses - Noninterest income surged to $8.3 million in Q3 2025, a substantial increase from $1.5 million in Q2 2025, primarily due to the absence of losses from the sale of investment securities [27][28] - Noninterest expenses rose by $0.5 million, or 1.3%, to $41.6 million, mainly due to increased compensation and professional fees related to merger activities [31][32] Capital and Liquidity - Total stockholders' equity increased by $15.9 million, or 1.8%, to $904.1 million, supported by net income and a decrease in accumulated other comprehensive loss [11] - The company maintained strong capital ratios, with a common equity tier 1 capital ratio of 12.4% and a leverage ratio of 10.5% as of September 30, 2025 [12] Credit Quality - The allowance for credit losses on loans increased to 1.13% of loans receivable, reflecting a provision for credit losses of $1.6 million during Q3 2025 [14][15] - Classified loans decreased to 2.0% of total loans, indicating improved credit quality [17]

Core Insights - Class Action Attorney Juan Monteverde's firm, Monteverde & Associates PC, is investigating Heritage Financial Corporation's merger with Olympic Bancorp, Inc., where Heritage shareholders will own approximately 82.6% of the combined entity, raising questions about the fairness of the deal [1]. Company Overview - Monteverde & Associates PC is recognized as a Top 50 Firm in the 2024 ISS Securities Class Action Services Report and has successfully recovered millions for shareholders [1]. - The firm operates from the Empire State Building in New York City and specializes in national class action securities litigation [2]. Legal Context - The investigation into Heritage Financial Corporation is part of a broader effort to ensure that shareholders' rights are protected during significant corporate transactions [1][3]. - The firm encourages shareholders with concerns to reach out for additional information and assistance [3].

Core Viewpoint - Heritage Financial has announced an agreement to acquire Olympic Bancorp, the parent company of Kitsap Bank, which is a community bank with total assets of $1.7 billion [3]. Company Overview - Olympic Bancorp is the holding company of Kitsap Bank, a 117-year-old community bank headquartered in Port Orchard, Washington [3]. - Kitsap Bank operates primarily in the Western Puget Sound region and has a network of 16 branches [3]. Transaction Details - The acquisition was announced after the market closed, indicating a strategic move for Heritage Financial to expand its footprint in the community banking sector [3]. - The transaction details are available in a presentation on Heritage Financial's Investor Relations website [2].

Core Viewpoint - Heritage Financial has announced an agreement to acquire Olympic Bancorp, the parent company of Kitsap Bank, which is a community bank with total assets of $1.7 billion [3]. Company Overview - Heritage Financial is engaging in a strategic acquisition to enhance its market presence and operational capabilities by combining with Olympic Bancorp [2]. - Olympic Bancorp operates Kitsap Bank, a 117-year-old community bank located in Port Orchard, Washington, primarily serving the Western Puget Sound region through 16 branches and 1 loan office [3]. Financial Details - The total assets of Kitsap Bank are reported to be $1.7 billion, indicating a significant scale for a community bank [3].

Summary of Heritage Financial (NasdaqGS:HFWA) M&A Announcement Company and Industry - **Company**: Heritage Financial - **Acquisition Target**: Olympic Bancorp, parent of Kitsap Bank - **Industry**: Banking and Financial Services Core Points and Arguments 1. **Merger Announcement**: Heritage Financial announced an agreement to acquire Olympic Bancorp, which operates Kitsap Bank, a community bank with total assets of $1.7 billion and a history of 117 years [3][4] 2. **Strategic Fit**: The merger is described as a "win-win" for shareholders, enhancing scale, market presence, and financial returns. Both banks share a commitment to relationship banking and community service [3][4] 3. **Geographic Expansion**: The merger will extend Heritage's footprint into new communities in the Western Puget Sound region, where Kitsap Bank has a strong market share [6] 4. **Financial Terms**: The merger is an all-stock transaction with a fixed exchange ratio of 45 shares of Heritage common stock for each share of Olympic common stock, implying a deal value of approximately $176.6 million [10][11] 5. **EPS Projections**: The fully phased-in earnings per share (EPS) pickup is projected to be approximately 18% in 2027 [11] 6. **Cost Savings**: Heritage anticipates 35% cost savings from the merger, with 45% expected to be realized in 2026 and full realization in 2027 [12][28] 7. **Credit Quality**: Both banks have clean credit portfolios, with Kitsap's non-performing assets (NPA) to assets ratio at 0.01% [5][6] 8. **Employee Retention**: Key leaders from Kitsap Bank will be retained, and employment contracts have been signed to ensure continuity [62] Additional Important Insights 1. **Rate Sensitivity**: Both banks are neutral in their interest rate risk sensitivity, which is expected to remain stable post-merger [18] 2. **Future M&A Appetite**: Heritage's priority is to ensure the success of this transaction before considering further M&A opportunities [22] 3. **Loan to Deposit Ratio**: Heritage aims to improve its loan to deposit ratio to the mid to high 80% range, currently in the low 80s [67] 4. **Durbin Amendment Impact**: The potential impact of the Durbin Amendment on combined organizations could be up to $7 million in the future [48] 5. **Board Structure**: There will be no changes to the Heritage Board as a result of the merger, maintaining the current governance structure [75] This summary encapsulates the key points from the conference call regarding the merger between Heritage Financial and Olympic Bancorp, highlighting the strategic rationale, financial implications, and operational considerations.