HERITAGE FINANCIAL CORP /WA/
For the period ended Sep 30, 2026. Filed Nov 6, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 6, 2026
Extracted filing text, with the paragraph anchors used by the comparison.
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NET INTEREST INCOME AND MARGIN OVERVIEW
Net Interest Income and Margin
One of the Company's key sources of revenue is net interest income. Several factors affect net interest income, including, but not limited to: the volume, pricing, mix and maturity of interest earning assets and interest bearing liabilities; the volume of noninterest earning assets, noninterest bearing demand deposits, other noninterest bearing liabilities and stockholders' equity; market interest rate fluctuations; and asset quality.
The following table provides net interest income information for the periods indicated:
| Three Months Ended September 30, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 · 2025 · Change | |||||||||||||||||
| AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate(1) · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate(1) · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate(1) | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Interest Earning Assets: | |||||||||||||||||
| Loans receivable (2)(3) | $5,817,905 | $84,470 | 5.76% | $4,762,648 | $66,422 | 5.53% | $1,055,257 | $18,048 | 0.23% | ||||||||
| Taxable securities | 1,609,163 | 14,456 | 3.56 | 1,314,374 | 11,102 | 3.35 | 294,789 | 3,354 | 0.21 | ||||||||
| Nontaxable securities (3) | 15,049 | 126 | 3.32 | 15,242 | 138 | 3.59 | (193) | (12) | (0.27) | ||||||||
| Interest earning deposits | 121,352 | 1,139 | 3.72 | 166,182 | 1,846 | 4.41 | (44,830) | (707) | (0.69) | ||||||||
| Total interest earning assets | 7,563,469 | 100,191 | 5.26% | 6,258,446 | 79,508 | 5.04% | 1,305,023 | 20,683 | 0.22% | ||||||||
| Noninterest earning assets | 917,141 | 747,694 | 169,447 | ||||||||||||||
| Total assets | $8,480,610 | $7,006,140 | $1,474,470 | ||||||||||||||
| Interest Bearing Liabilities: | |||||||||||||||||
| Certificates of deposit | $1,033,482 | $8,157 | 3.13% | $955,737 | $8,822 | 3.66% | $77,745 | $(665) | (0.53)% | ||||||||
| Savings accounts | 575,102 | 296 | 0.20 | 428,256 | 296 | 0.27 | 146,846 | — | (0.07) | ||||||||
| Interest bearing demand and money market accounts | 3,528,494 | 12,916 | 1.45 | 2,833,048 | 11,003 | 1.54 | 695,446 | 1,913 | (0.09) | ||||||||
| Total interest bearing deposits | 5,137,078 | 21,369 | 1.65 | 4,217,041 | 20,121 | 1.89 | 920,037 | 1,248 | (0.24) | ||||||||
| Junior subordinated debentures | 22,527 | 437 | 7.70 | 22,239 | 474 | 8.46 | 288 | (37) | (0.76) | ||||||||
| Borrowings | 110,936 | 1,126 | 4.03 | 136,582 | 1,542 | 4.48 | (25,646) | (416) | (0.45) | ||||||||
| Total interest bearing liabilities | 5,270,541 | 22,932 | 1.73% | 4,375,862 | 22,137 | 2.01% | 894,679 | 795 | (0.28)% | ||||||||
| Noninterest bearing demand deposits | 2,000,526 | 1,625,945 | 374,581 | ||||||||||||||
| Other noninterest bearing liabilities | 102,381 | 112,053 | (9,672) | ||||||||||||||
| Stockholders’ equity | 1,107,162 | 892,280 | 214,882 | ||||||||||||||
| Total liabilities and stock-holders’ equity | $8,480,610 | $7,006,140 | $1,474,470 | ||||||||||||||
| Net interest income and spread | $77,259 | 3.53% | $57,371 | 3.03% | $19,888 | 0.50% | |||||||||||
| Net interest margin | 4.05% | 3.64% | 0.41% | ||||||||||||||
(1)Average balances are calculated using daily balances. Average yield/rate is annualized.
(2)Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $1.4 million and $1.0 million for the three months ended September 30, 2026 and 2025, respectively, and the incremental accretion on purchased loans of $1.5 million and $123,000 for the three months ended September 30, 2026 and 2025, respectively.
(3)Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
The following table provides the changes in net interest income for the three months ended September 30, 2026 compared to the same period in 2025, due to changes in average asset and liability balances (volume), changes in average yields/rates (rate) and changes attributable to the combined effect of volume and rates allocated proportionately to the absolute value of changes due to volume and changes due to rates:
| Increase (Decrease) Due to Changes In: | |||
|---|---|---|---|
| Volume | Yield/Rate | Total | |
| (Dollars in thousands) | |||
| Interest Earning Assets: | |||
| Loans receivable | $15,227 | $2,821 | $18,048 |
| Taxable securities | 2,613 | 741 | 3,354 |
| Nontaxable securities | (2) | (10) | (12) |
| Interest earning deposits | (449) | (258) | (707) |
| Total interest income | $17,389 | $3,294 | $20,683 |
| Interest Bearing Liabilities: | |||
| Certificates of deposit | $681 | $(1,346) | $(665) |
| Savings accounts | 87 | (87) | — |
| Interest bearing demand and money market accounts | 2,575 | (662) | 1,913 |
| Total interest bearing deposits | 3,343 | (2,095) | 1,248 |
| Junior subordinated debentures | 6 | (43) | (37) |
| Borrowings | (270) | (146) | (416) |
| Total interest expense | $3,079 | $(2,284) | $795 |
| Net interest income | $14,310 | $5,578 | $19,888 |
Net interest income increased $19.9 million, or 34.7%, to $77.3 million for the three months ended September 30, 2026, compared to $57.4 million for the same period in 2025, due primarily to a $20.7 million increase in total interest income, offset partially by a $0.8 million increase in total interest expense. The increase in net interest income was primarily due to an increase in average interest earning assets as a result of the Merger.
Net interest margin increased 41 basis points to 4.05% for the three months ended September 30, 2026, compared to 3.64% for the same period in 2025. The increase in net interest margin was due primarily to an increase in loan yield as a result of the Merger.
The yield on interest earning assets increased 22 basis points to 5.26% for the three months ended September 30, 2026, compared to 5.04% for the same period in 2025. The yield on loans receivable increased 23 basis points to 5.76% during the three months ended September 30, 2026, compared to 5.53% for the same period in 2025. The increase was due primarily to an increase in rates on originated loans and the incremental accretion on purchased loans which contributed 10 basis points to loan yield during the three months ended September 30, 2026. The incremental accretion and the impact to loan yield will change during any period based on the volume of prepayments, but is expected to decrease over time as the balance of the purchased loans decreases.
The following table presents the net interest margin and loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods indicated:
| Three Months EndedSeptember 30, | ||
|---|---|---|
| 2026 | 2025 | |
| Net Interest Margin, excluding incremental accretion on purchased loans, annualized: | ||
| Net interest margin | 4.05% | 3.64% |
| Exclude impact from incremental accretion on purchased loans(2) | (0.07)% | (0.01)% |
| Net interest margin, excluding incremental accretion on purchased loans(1) | 3.98% | 3.63% |
| Loan yield, excluding incremental accretion on purchased loans, annualized: | ||
| Loan yield | 5.76% | 5.53% |
| Exclude impact from incremental accretion on purchased loans(2) | (0.10) | (0.01) |
| Loan yield, excluding incremental accretion on purchased loans(1) | 5.66% | 5.52% |
| Incremental accretion on purchased loans(1) | $1,456 | $123 |
(1)Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.
(2)Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the acquisition date. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.
The cost of interest bearing deposits decreased 24 basis points to 1.65% for the three months ended September 30, 2026, compared to 1.89% for same period in 2025. This decrease was primarily due to the deposits acquired from Olympic, which had a lower cost of deposits.
Comparison of nine months ended September 30, 2026 to the comparable period in the prior year
The following table provides net interest income information for the periods indicated:
| Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 · 2025 · Change | |||||||||||
| AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate(1) · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate | |||||||||||
| (Dollars in thousands) | |||||||||||
| Interest Earning Assets: | |||||||||||
| Loans receivable (2)(3) | $5,658,741 | $242,850 | 5.74% | $4,774,926 | $196,231 | 5.49% | $883,815 | $46,619 | 0.25% | ||
| Taxable securities | 1,577,611 | 41,490 | 3.52 | 1,371,957 | 34,420 | 3.35 | 205,654 | 7,070 | 0.17 | ||
| Nontaxable securities (3) | 15,381 | 383 | 3.33 | 15,406 | 414 | 3.59 | (25) | (31) | (0.26) | ||
| Interest earning deposits | 139,494 | 3,817 | 3.66 | 130,253 | 4,309 | 4.42 | 9,241 | (492) | (0.76) | ||
| Total interest earning assets | 7,391,227 | 288,540 | 5.22% | 6,292,542 | 235,374 | 5.00% | 1,098,685 | 53,166 | 0.22% | ||
| Noninterest earning assets | 895,082 | 759,206 | 135,876 | ||||||||
| Total assets | $8,286,309 | $7,051,748 | $1,234,561 | ||||||||
| Nine Months Ended September 30, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 · 2025 · Change | |||||||||||||||||
| AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate(1) · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate · AverageBalance(1) · InterestEarned/Paid · AverageYield/Rate | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Interest Bearing Liabilities: | |||||||||||||||||
| Certificates of Deposit | $1,062,740 | $25,788 | 3.24% | $971,933 | $27,841 | 3.83% | $90,807 | $(2,053) | (0.59)% | ||||||||
| Savings accounts | 569,115 | 959 | 0.23 | 426,767 | 877 | 0.27 | 142,348 | 82 | (0.04) | ||||||||
| Interest bearing demand and money market accounts | 3,426,293 | 36,760 | 1.43 | 2,770,162 | 31,042 | 1.50 | 656,131 | 5,718 | (0.07) | ||||||||
| Total interest bearing deposits | 5,058,148 | 63,507 | 1.68 | 4,168,862 | 59,760 | 1.92 | 889,286 | 3,747 | (0.24) | ||||||||
| Junior subordinated debentures | 22,455 | 1,298 | 7.73 | 22,164 | 1,417 | 8.55 | 291 | (119) | (0.82) | ||||||||
| Securities sold under agreement to repurchase | — | — | — | — | — | — | — | — | — | ||||||||
| Borrowings | 81,367 | 2,441 | 4.01 | 233,504 | 8,153 | 4.67% | (152,137) | (5,712) | (0.66) | ||||||||
| Total interest bearing liabilities | 5,161,970 | 67,246 | 1.74% | 4,424,530 | 69,330 | 2.10% | 737,440 | (2,084) | (0.36)% | ||||||||
| Noninterest bearing demand deposits | 1,936,229 | 1,620,047 | 316,182 | ||||||||||||||
| Other noninterest bearing liabilities | 98,436 | 127,505 | (29,069) | ||||||||||||||
| Stockholders’ equity | 1,089,674 | 879,666 | 210,008 | ||||||||||||||
| Total liabilities and stock-holders’ equity | $8,286,309 | $7,051,748 | $1,234,561 | ||||||||||||||
| Net interest income and spread | $221,294 | 3.48% | $166,044 | 2.90% | $55,250 | 0.58% | |||||||||||
| Net interest margin | 4.00% | 3.53% | 0.47% | ||||||||||||||
(1) Average balances are calculated using daily balances. Average yield/rate is annualized.
(2) Average loans receivable includes loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable includes the amortization of net deferred loan fees of $3.2 million and $2.7 million for the nine months ended September 30, 2026 and 2025, respectively, and the incremental accretion on purchased loans of $4.9 million and $352,000 for the nine months ended September 30, 2026 and 2025, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
The following table provides the changes in net interest income for the nine months ended September 30, 2026 compared to the same period in 2025, due to changes in average asset and liability balances (volume), changes in average yields/rates (rate) and changes attributable to the combined effect of volume and rates allocated proportionately to the absolute value of changes due to volume and changes due to rates:
| Increase (Decrease) Due to Changes In: | |||
|---|---|---|---|
| Volume | Yield/Rate | Total | |
| (Dollars in thousands) | |||
| Interest Earning Assets: | |||
| Loans receivable | $37,619 | $9,000 | $46,619 |
| Taxable securities | 5,348 | 1,722 | 7,070 |
| Nontaxable securities | (1) | (30) | (31) |
| Interest earning deposits | 291 | (783) | (492) |
| Total interest income | $43,257 | $9,909 | $53,166 |
| Interest Bearing Liabilities: | |||
| Certificates of deposit | $2,450 | $(4,503) | $(2,053) |
| Savings accounts | 259 | (177) | 82 |
| Interest bearing demand and money market accounts | 7,088 | (1,370) | 5,718 |
| Total interest bearing deposits | 9,797 | (6,050) | 3,747 |
| Junior subordinated debentures | 19 | (138) | (119) |
| Borrowings | (4,697) | (1,015) | (5,712) |
| Total interest expense | $5,119 | $(7,203) | $(2,084) |
| Net interest income | $38,138 | $17,112 | $55,250 |
Net interest income increased $55.3 million, or 33.3%, to $221.3 million for the nine months ended September 30, 2026, compared to $166.0 million for the same period in 2025, due primarily to a $53.2 million increase in total interest income and a
$2.1 million decrease in total interest expense. The increase in net interest income was primarily due to an increase in average interest earning assets as a result of the Merger and a decrease in interest expense due to a decrease in average borrowings.
Net interest margin increased 47 basis points to 4.00% for the nine months ended September 30, 2026, compared to 3.53% for the same period in 2025. The increase in net interest margin was due to an increase in both the average loan balance and loan yield as a result of the Merger.
The yield on interest earning assets increased 22 basis points to 5.22% for the nine months ended September 30, 2026, compared to 5.00% for the same period in 2025. The yield on loans receivable increased 25 basis points to 5.74% during the nine months ended September 30, 2026, compared to 5.49% for the same period in 2025. The increase was due primarily to an increase in rates on originated loans and the incremental accretion on purchased loans which contributed 12 basis points to loan yield during the nine months ended September 30, 2026. The incremental accretion and the impact to loan yield will change during any period based on the volume of prepayments, but is expected to decrease over time as the balance of the purchased loans decreases.
The following table presents the net interest margin and loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods indicated:
| Nine Months EndedSeptember 30, | ||
|---|---|---|
| 2026 | 2025 | |
| Net Interest Margin, excluding incremental accretion on purchased loans, annualized: | ||
| Net interest margin | 4.00% | 3.53% |
| Exclude impact from incremental accretion on purchased loans(2) | (0.08)% | (0.01)% |
| Net interest margin, excluding incremental accretion on purchased loans(1) | 3.92% | 3.52% |
| Loan yield, excluding incremental accretion on purchased loans, annualized: | ||
| Loan yield | 5.74% | 5.49% |
| Exclude impact from incremental accretion on purchased loans(2) | (0.12) | (0.01) |
| Loan yield, excluding incremental accretion on purchased loans(1) | 5.62% | 5.48% |
| Incremental accretion on purchased loans(1) | $4,852 | $352 |
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.
(2) Represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the acquisition date. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.
The cost of interest bearing deposits decreased 24 basis points to 1.68% for the nine months ended September 30, 2026, compared to 1.92% for same period in 2025. This decrease was primarily due to the deposits acquired from Olympic, which had a lower cost of deposits.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.