Heritage Financial (HFWA) Q3 2026 Earnings Call Transcript

Heritage Financial surpassed analyst expectations in the third quarter of 2026, delivering earnings of $0.55 per share on revenue of $86.51 million, outperforming forecasts of $0.51 per share and $86.11 million in revenue. The regional bank announced the completion of a crucial systems conversion as part of its Kitsap Bank integration, which contributed to reduced merger-related costs.

In pre-market trading, the stock saw a 2.94% increase, closing at $28.50, affirming its position near the upper end of its 52-week range. Heritage Financial exceeded earnings estimates by $0.04 per share, or 7.84%, while revenue grew past expectations by $400,000.

The bank's net interest margin widened to 4.05% from 3.99% in the prior quarter, driven by higher loan yields and reduced deposit costs. Loan balances expanded by $133 million, and deposits rose by $148 million during the quarter. Heritage Financial completed the Kitsap Bank systems conversion, which will help lower integration expenses moving forward.

Despite the overall solid performance, the company reported a slight increase in non-accrual loans to just under $32 million. Overall, Heritage Financial posted an improved third quarter, with gains in lending, deposits, and profitability. Management highlighted a 1.8% increase in total loans and a 1.9% increase in deposits during the period.

The integration of Kitsap Bank marked a significant milestone in the company's merger process, with the systems conversion concluded in late September and deemed highly successful.

Market reactions were positive, with shares rising 2.94% to $28.50 following the earnings release, marking a $0.82 increase from the previous close of $27.68. The stock now trades close to the top of its 52-week range, indicating that investors have already rewarded the company for its improved results and smoother integration narrative.

The valuation of the stock appears favorable, with a P/E ratio of 13.7 and a PEG ratio of 0.32, suggesting that the bank may be undervalued relative to its growth prospects. Management expressed confidence in loan growth and net interest margin improvements, citing higher five-year rates and better asset repricing, while anticipating ongoing expenses to stabilize as merger-related costs diminish.