Heritage Financial Corporation has recently released its 10-Q report for the three and six months ended June 30, 2026. Heritage Financial is the bank holding company for Heritage Bank, which serves small and medium-sized businesses and their owners through deposit products, commercial and real estate lending, consumer loans, and SBA-guaranteed loans. The company also provides online and mobile banking, debit cards, investment advice, and related banking services.
In Item 2, management said Heritage Bank operated from branches across Washington state, the greater Portland, Oregon area, Eugene, Oregon, and Boise, Idaho as of June 30, 2026, and also used the Whidbey Island Bank and Kitsap Bank names in certain markets. The company said its core earnings are driven mainly by net interest income, which depends on the size and mix of loans, securities, deposits, and borrowings, as well as market interest rates and credit costs. It also said results are affected by noninterest income, noninterest expense, and the ability to execute its growth strategy through organic expansion or acquisitions.
A major event in the quarter was the January 31, 2026 acquisition of Olympic, a Port Orchard, Washington-based bank holding company. Under the merger, Olympic shareholders received 45.0 shares of Heritage common stock for each Olympic share, and the deal used 7,167,600 shares of Heritage common stock valued at about $185.0 million based on Heritage’s January 30, 2026 closing price. Olympic’s Kitsap Bank merged into Heritage Bank, and Olympic operated 16 branches in Washington at closing.
Net income rose to $17.5 million, or $0.42 per diluted share, for the quarter ended June 30, 2026, from $12.2 million, or $0.36 per diluted share, a year earlier. 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. The company tied both increases primarily to higher net interest income and, to a lesser extent, higher noninterest income.
Quarterly net interest income increased $19.8 million, or 36.1%, to $74.8 million. Average interest-earning assets rose to $7.52 billion from $6.29 billion, with average loans receivable increasing to $5.74 billion from $4.77 billion. Loan interest income climbed to $81.9 million from $65.4 million, and taxable securities income rose to $14.5 million from $11.6 million. Interest expense on total interest-bearing liabilities declined to $22.9 million from $23.5 million.
The net interest margin widened to 3.99% from 3.51%. The average yield on loans receivable increased to 5.72% from 5.50%, and the yield on total interest-earning assets rose to 5.21% from 5.01%. 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.
Noninterest income improved in both periods, helped by a smaller securities loss. In the second quarter of 2025, Heritage recorded a $6.9 million pre-tax loss on the sale of investment securities, compared with a $217,000 pre-tax loss in the second quarter of 2026. For the six-month period, the securities loss narrowed to $217,000 from $10.7 million.
Noninterest expense increased sharply. Quarterly noninterest expense rose $23.2 million, and six-month noninterest expense increased $38.4 million, both driven largely by merger-related costs. Management cited higher compensation and employee benefits from increased headcount, severance expense, higher occupancy and equipment costs from additional rent, and more data processing expense tied to higher transactional accounts and balances. Today the company's shares have moved -0.51% to a price of $29.50. For the full picture, make sure to review HERIT's 10-Q report.
