Heritage Financial reported second-quarter net income of $17.5 million, down from $18.9 million in the first quarter and up from $12.2 million a year earlier. Diluted earnings per share fell to $0.42 from $0.48 in the prior quarter, while adjusted diluted EPS slipped to $0.57 from $0.59.
Net interest margin widened to 3.99% from 3.96% in the first quarter and 3.51% in the second quarter of 2025. The cost of interest-bearing deposits eased to 1.67% from 1.71% in the prior quarter, while the cost of total deposits declined to 1.21% from 1.25%.
The company said merger-related expenses rose to $7.5 million in the quarter from $5.2 million in the first quarter, its first full quarter of results after the January 31 acquisition of Olympic Bancorp.
Loans receivable increased $25.5 million, or 0.4%, to $5.75 billion at June 30 from $5.72 billion at March 31. New loans funded jumped to $162.2 million from $97.0 million in the first quarter and $139.9 million in the second quarter of 2025, but prepayments also climbed to $102.5 million from $72.5 million.
Within the loan book, commercial and industrial loans fell $8.2 million to $1.05 billion. Owner-occupied commercial real estate rose $14.1 million to $1.23 billion, non-owner occupied CRE increased $42.9 million to $2.51 billion, residential construction grew $13.2 million to $136.6 million, and commercial and multifamily construction dropped $28.5 million to $259.9 million.
Total deposits declined $209.8 million, or 2.9%, to $7.04 billion from $7.25 billion. Non-maturity deposits fell $138.4 million to $5.98 billion, driven by a $93.7 million drop in noninterest demand deposits and a $71.4 million decline in certificates of deposit. Money market balances slipped $13.8 million to $1.57 billion, while savings deposits fell $24.9 million to $581.3 million.
Borrowings rose sharply to $166.3 million from $20.0 million in the prior quarter, all from the Federal Home Loan Bank. Stockholders’ equity slipped to $1.11 billion from $1.12 billion, reflecting $10.0 million in common dividends, $10.1 million in share repurchases, and $5.0 million in other comprehensive loss.
The company repurchased 372,343 shares for $10.0 million during the quarter. Book value per share edged up to $27.13 from $27.05, and tangible book value per share rose to $19.15 from $19.07.
Credit metrics improved. Classified loans fell to $105.4 million from $121.3 million, and the ratio of classified loans to total loans dropped to 1.8% from 2.1%. The allowance for credit losses on loans declined to 1.03% of loans from 1.06% in the prior quarter. Nonaccrual loans increased slightly to $15.5 million from $15.0 million.
Liquidity totaled $3.27 billion at quarter-end, up from $3.20 billion at March 31. On-balance-sheet liquidity fell to $1.15 billion from $1.25 billion, but off-balance-sheet liquidity climbed to $2.12 billion from $1.96 billion, led by higher FHLB borrowing availability.
Heritage also declared a regular cash dividend of $0.25 per share, up from $0.24 in the prior quarter, a 4.2% increase. Today the company's shares have moved -0.78% to a price of $30.055. For the full picture, make sure to review HERIT's 8-K report.
