Heritage Financial (HFWA) investor relations material

Executive summary

• Completed the acquisition of Olympic Bancorp on January 31, 2026, adding $1.59 billion in assets and $1.39 billion in deposits, and issuing 7.17 million shares as consideration for the merger, significantly expanding the Pacific Northwest footprint and driving operational scale.

• Net income for Q1 2026 was $18.9 million ($0.48 per diluted share), up 36.2% year-over-year, with adjusted net income of $23.0 million and adjusted diluted EPS of $0.59, reflecting higher net interest and noninterest income.

• The merger resulted in $38.1 million of goodwill and $50.3 million in core deposit intangibles, with $5.2 million in merger-related costs incurred in the quarter.

• Declared a regular cash dividend of $0.24 per share, with stockholders’ equity increasing by $194.2 million due to shares issued in the merger.

• Systems conversion for the merger is scheduled for late Q3 2026, with elevated expenses expected until Q4.

Financial highlights

• Net interest income increased $15.5 million (28.9%) to $69.2 million, with net interest margin rising to 3.96% from 3.72% in Q4 2025 and 3.44% in Q1 2025; loan yield rose to 5.73%.

• Total assets reached $8.5 billion, loans receivable $5.72 billion, and deposits $7.25 billion as of March 31, 2026, reflecting 22% asset and deposit growth year-over-year.

• Cost of interest-bearing deposits decreased to 1.71% from 1.83% in the prior quarter.

• Noninterest income grew $4.8 million, mainly due to higher service charges, card revenue, and BOLI income; noninterest expense rose 36.7% to $56.6 million, driven by merger-related costs and higher amortization of intangibles.

• Allowance for credit losses on loans was $60.6 million (1.06% of loans), up from $52.6 million at year-end, mainly due to acquired loans.

Outlook and guidance

• System conversion for the Olympic acquisition is on track for completion by end of Q3 2026, expected to yield further cost savings and lower noninterest expense in Q4.

• Management targets IRR >15% and earnbacks <3 years for acquisitions, with EPS guidance of $2.51 for 2026 and $2.91 for 2027.

• Excluding merger costs, noninterest expense projected at $57–$58 million for Q2 and Q3, and $55 million in Q4.

• Anticipate net interest margin to reach 4% by year-end, with continued margin expansion and annualized loan growth in the mid-single digits.

• Deposit costs expected to remain stable around 1.68–1.70% for the remainder of the year.