Heritage Financial Corporation recently released its 10-Q report for the three and six months ended June 30, 2026. Heritage Financial is a Washington-based bank holding company whose single operating subsidiary, Heritage Bank, serves small and medium-sized businesses and their owners through commercial lending, deposit products, real estate construction and development loans, residential real estate loans, consumer credit, and SBA-guaranteed lending. It also provides online and mobile banking, debit cards, and investment advice, and operates under the Heritage Bank, Whidbey Island Bank, and Kitsap Bank names in selected markets.
In Item 2, management said the company’s core earnings engine remains net interest income, which is driven by the spread between interest earned on loans and securities and interest paid on deposits and borrowings. The company said credit loss provisioning, noninterest income, and noninterest expense also materially affect results, with compensation, occupancy, data processing, and professional services among the largest expense categories.
The biggest event in the period was the January 31, 2026 acquisition of Olympic, a Port Orchard, Washington bank holding company. Heritage issued 7,167,600 shares of common stock for the deal, valuing the consideration at about $185.0 million based on Heritage’s January 30 closing price. Olympic’s Kitsap Bank, which operated 16 branches in Washington at closing, was merged into Heritage Bank.
For the quarter ended June 30, 2026, net income rose to $17.5 million, or $0.42 per diluted share, from $12.2 million, or $0.36 per diluted share, a year earlier. The increase came from a $19.8 million rise in net interest income and a $7.8 million increase in noninterest income, partly offset by a $23.2 million jump in noninterest expense tied largely to merger-related costs.
For the first six months of 2026, net income increased to $36.5 million, or $0.90 per diluted share, from $26.1 million, or $0.76 per diluted share. Net interest income and noninterest income both improved, while noninterest expense climbed $38.4 million, again driven mainly by merger-related compensation, severance, occupancy, and data processing costs.
Average loans receivable for the quarter reached $5.74 billion, up from $4.77 billion a year earlier. Loan interest income increased to $81.9 million from $65.4 million, while the average yield on loans rose to 5.72% from 5.50%.
Average interest-earning assets increased to $7.52 billion from $6.29 billion, and total interest income rose to $97.7 million from $78.5 million. Interest expense on total interest-bearing liabilities declined to $22.9 million from $23.5 million, helped by lower borrowing costs and a lower rate on certificates of deposit.
Net interest income for the quarter rose to $74.8 million from $55.0 million, and the net interest margin widened to 3.99% from 3.51%. The company said the margin improvement was driven primarily by the larger loan balance and higher loan yield following the merger.
On the funding side, average noninterest-bearing demand deposits increased to $2.0 billion from $1.6 billion. Average interest-bearing deposits increased to $5.13 billion from $4.18 billion, while average borrowings fell to $105.1 million from $245.7 million. As a result of these announcements, the company's shares have moved 0.24% on the market, and are now trading at a price of $29.72. If you want to know more, read the company's complete 10-Q report here.
