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What factors drove the changes in Heritage Financial's revenue and profit?

- **Revenue Growth Momentum**: Q3 loan production up 23% QoQ to $317M, with pipeline at $511M.
- **Margin Improvement**: Deposit cost decline to 1.87% and NIM expansion expected in 2026.
- **Strategic Merger**: Olympic Bancorp deal on track for Q1 2026 close, enhancing profitability.
- **Credit Stability**: Nonperforming loans at 0.44% with minimal loss exposure.
- **2026 Outlook**: Loan growth resumption and expense control supporting EPS expansion.

**【CEO Summary Section】**
- The company reported strong third-quarter performance with adjusted EPS up 5.7% quarter-over-quarter and 24.4% year-over-year. 
- Management highlighted the pending merger with Olympic Bancorp, which is expected to close in early Q1 2026, and emphasized disciplined credit underwriting to navigate economic volatility.
- Loan production remained robust at $317 million in Q3, up 23% from Q2, with a pipeline of $511 million.
- Deposit growth of $73 million in Q3 was driven by seasonal factors and new account activity, with a focus on maintaining a loan-to-deposit ratio near 85%.
- Management expects loan payoffs to moderate in 2026, supporting net interest margin improvement.

**【CFO Financial Commentary】**
- GAAP net income was $420 million, with Non-GAAP EPS exceeding expectations at $1.08.
- Cost of deposits declined to 1.87% in Q3, down from 1.94% in Q2, reflecting tighter control over noninterest expense growth.
- The company paused stock buybacks in Q3 to preserve capital for the Olympic merger.

**【Q&A Key Highlights】**
- **Deposit Strategy**: Management expects to maintain a loan-to-deposit ratio near 85% and reprice adjustable-rate loans higher in 2026.
- **Merger Impact**: The Olympic merger will enhance profitability and liquidity, with integration efforts progressing smoothly.
- **Credit Quality**: Nonperforming loans remain stable at 0.44% of total loans, with minimal loss expectations on construction loans.
- **2026 Outlook**: Loan growth is expected to resume in 2026 as loan payoffs moderate, with production levels near $300 million per quarter.
- **Expense Management**: Core expenses are expected to remain in the low $41 million range, excluding merger-related costs.

**【Risk and Opportunity】**
- Elevated loan payoffs in 2025 (up $124 million year-over-year) are expected to normalize in 2026, supporting net interest income growth.
- The merger with Olympic Bancorp will add scale and improve operational efficiency.
- Management remains cautious on economic volatility but confident in credit quality metrics.


Heritage Financial Corporation (HFWA) Q3 2025 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

General and Administrative Expenses

Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

Current Income Tax

Deferred Income Tax

Income Tax Adjustments

Net Income from Continuing Operations

Income from Discontinued Operations

Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

Net Income Attributable to Common Stockholders

Other Comprehensive Income

Total Comprehensive Income

Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

Basic EPS from Continuing Operations

Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

HFWA

HFWA fundamentals

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