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1. Company Snapshot

1.a. Company Description

Heritage Financial Corporation operates as the bank holding company for Heritage Bank that provides various financial services to small and medium sized businesses and individuals in the United States.The company accepts various deposit products, such as noninterest demand deposits, interest bearing demand deposits, money market accounts, savings accounts, personal checking accounts, and certificates of deposit.Its loan portfolio includes commercial and industrial loans, owner-occupied and non-owner occupied commercial real estate loans, one-to-four family residential loans, real estate construction and land development loans, consumer loans, commercial business loans, lines of credit, term equipment financing, and term real estate loans, as well as commercial business loans to a range of businesses in industries that include real estate and rental and leasing, healthcare, accommodation and food services, retail trade, and construction.


The company also originates loans that are guaranteed by the U.S. Small Business Administration; and offers trust services, as well as objective advice.As of January 27, 2022, it had a network of 49 banking offices located in Washington and Oregon.The company was formerly known as Heritage Financial Corporation, M.H.C. and changed its name to Heritage Financial Corporation in 1998.


Heritage Financial Corporation was founded in 1927 and is headquartered in Olympia, Washington.

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1.b. Last Insights on HFWA

Heritage Financial Corporation's recent performance was driven by strong Q3 earnings, with net income of $19.2 million, or $0.55 per diluted share, exceeding previous quarter's $12.2 million. A proposed merger with Olympic Bancorp, Inc. also boosted prospects. Analysts forecast a 25.23% upside, citing raised earnings estimates. The company's strategic expansion in the Puget Sound region and a regular cash dividend of $0.24 per share further enhanced investor appeal.

1.c. Company Highlights

2. Heritage Financial's Q3 2025 Earnings: A Strong Performance

Heritage Financial reported a robust Q3 2025, with adjusted earnings per share rising 5.7% from the previous quarter and 24.4% from Q3 2024 to $0.56, in line with analyst estimates. The net interest margin (NIM) expanded to 3.64% from 3.51% in the prior quarter and 3.30% in Q3 2024, driven by a rise in yields on loans to 5.53%. The company's return on average assets (ROAA) improved to 1.11% versus 0.87% in Q3 2024. Revenue growth was supported by a $73 million increase in total deposits, with noninterest-bearing deposits up $33.7 million.

Publication Date: Oct -28

📋 Highlights
  • Adjusted Earnings Growth:: Adjusted EPS rose 5.7% QoQ and 24.4% YoY, with ROAA at 1.11% (vs. 0.87% in Q3 2024).
  • Net Interest Margin Expansion:: NIM increased to 3.64% (from 3.51% prior quarter, 3.30% in Q3 2024), with September NIM at 3.66%.
  • Deposit Growth:: Total deposits grew $73M ($173M YTD), driven by $33.7M increase in noninterest-bearing deposits.
  • Commercial Loan Pipeline:: Pipeline reached $511M, up from $248M in the prior quarter, with commitments at $317M.
  • Merger Progress:: Olympic Bancorp merger expected to close in early Q1 2026, with adjusted expenses projected in the low-$41M range.

Loan and Deposit Trends

Total loan balances decreased $5.7 million, while commercial loan commitments totaled $317 million, up from $248 million in the prior quarter. The commercial loan pipeline ended the quarter at $511 million, indicating a strong potential for future loan growth. Deposits increased $73 million during the quarter and are up $173 million year-to-date, driven by the company's strategy of targeting operating relationships and accounts that require strong servicing.

Asset Quality and Credit Metrics

The company's credit quality remains strong, with nonaccrual loans at 0.37% of total loans and no OREO. Criticized loans decreased to $194.5 million, with substandard loans at 2% of total loans. Net charge-offs were $118,000 for the quarter. According to CFO Don Hinson, the company expects to resolve a credit migration issue without loss in Q4, indicating a continued focus on asset quality.

Outlook and Valuation

Looking ahead to 2026, the company expects organic loan growth to return to mid- to high single digits, with loan payoffs moderating and net advances on loans becoming positive. With a current Price-to-Tangible Book Value (P/TBV) of approximately 0.87, and a Dividend Yield of 4.11%, the stock appears reasonably valued. Analysts estimate next year's revenue growth at 32.0%, suggesting a positive outlook for the company's future performance.

Merger and Capital Plans

The pending merger with Olympic Bancorp is expected to add to profitability and growth in the Puget Sound market, with an expected closing date in early Q1 2026. The company's capital priorities are to integrate the Olympic franchise successfully and then assess its capital position, potentially pausing buybacks for the remainder of the year. The company expects to earn back capital over time and will reassess its buyback strategy later.

3. NewsRoom

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Heritage Financial Investor Alert By The Former Attorney General Of Louisiana: Kahn Swick & Foti, LLC Investigates Heritage Financial Corporation - HFWA

Dec -03

Source: prnewswire.com

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Meet 33 Ideal "Safer" November Small/MidCap Value DiviBuys Of The S&P600

Nov -26

Source: seekingalpha.com

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How Much Upside is Left in Heritage Financial (HFWA)? Wall Street Analysts Think 25.23%

Nov -14

Source: zacks.com

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Heritage Financial Corporation (HFWA) Q3 2025 Earnings Call Transcript

Oct -23

Source: seekingalpha.com

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Heritage Financial (HFWA) Q3 Earnings: Taking a Look at Key Metrics Versus Estimates

Oct -23

Source: zacks.com

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Heritage Financial (HFWA) Q3 Earnings Meet Estimates

Oct -23

Source: zacks.com

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Heritage Financial Announces Third Quarter 2025 Results and Declares Regular Cash Dividend of $0.24 Per Share

Oct -23

Source: prnewswire.com

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Heritage Financial Services LLC Sells 510 Shares of Microsoft Corporation $MSFT

Oct -21

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.00%)

6. Segments

Banking and Related Activities

Expected Growth: 6.0%

Heritage Financial Corporation's 6.0% growth in Banking and Related Activities is driven by increasing demand for mortgage lending, strategic acquisitions, and expansion of commercial banking services. Additionally, the company's focus on digital transformation, cost savings initiatives, and a favorable interest rate environment have contributed to its growth momentum.

7. Detailed Products

Commercial Loans

Heritage Financial Corporation offers commercial loans to businesses of all sizes, providing financing for various business needs such as expansion, equipment purchases, and working capital.

Mortgage Loans

Heritage Financial Corporation offers mortgage loans to individuals and families, providing financing for home purchases, refinancing, and home equity loans.

Consumer Loans

Heritage Financial Corporation offers consumer loans for personal expenses, debt consolidation, and unexpected expenses.

Deposit Accounts

Heritage Financial Corporation offers a range of deposit accounts, including checking, savings, and certificates of deposit (CDs), providing customers with convenient and secure banking options.

Treasury Management Services

Heritage Financial Corporation offers treasury management services, including cash management, wire transfers, and account reconciliation, to help businesses manage their cash flow and optimize their financial operations.

Wealth Management Services

Heritage Financial Corporation offers wealth management services, including investment advice, portfolio management, and retirement planning, to help individuals and families achieve their long-term financial goals.

8. Heritage Financial Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Heritage Financial Corporation operates in a highly competitive industry, and customers have various alternatives to choose from. However, the company's strong brand reputation and customer loyalty programs help to mitigate the threat of substitutes.

Bargaining Power Of Customers

Heritage Financial Corporation's customers have significant bargaining power due to the availability of alternative financial institutions and online banking services. The company must focus on providing excellent customer service and competitive pricing to retain customers.

Bargaining Power Of Suppliers

Heritage Financial Corporation has a diverse supplier base, and no single supplier has significant bargaining power. The company's strong financial position and long-term contracts with suppliers also reduce the bargaining power of suppliers.

Threat Of New Entrants

The threat of new entrants in the financial services industry is moderate, as it requires significant capital investment and regulatory approvals. However, the rise of fintech companies and digital banking platforms poses a threat to traditional financial institutions like Heritage Financial Corporation.

Intensity Of Rivalry

The financial services industry is highly competitive, with many established players and new entrants vying for market share. Heritage Financial Corporation must focus on differentiating itself through innovative products and services, as well as investing in digital transformation to stay competitive.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 54.62%
Debt Cost 4.48%
Equity Weight 45.38%
Equity Cost 6.77%
WACC 5.52%
Leverage 120.35%

11. Quality Control: Heritage Financial Corporation passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Heritage Financial

A-Score: 6.5/10

Value: 6.0

Growth: 3.9

Quality: 6.8

Yield: 8.0

Momentum: 7.0

Volatility: 7.3

1-Year Total Return ->

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Esquire Financial

A-Score: 6.3/10

Value: 4.1

Growth: 8.8

Quality: 7.4

Yield: 1.0

Momentum: 9.5

Volatility: 7.3

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Citizens Community Bancorp

A-Score: 6.2/10

Value: 6.8

Growth: 5.2

Quality: 5.6

Yield: 4.0

Momentum: 7.0

Volatility: 8.7

1-Year Total Return ->

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OptimumBank

A-Score: 5.6/10

Value: 9.1

Growth: 6.4

Quality: 8.0

Yield: 0.0

Momentum: 2.5

Volatility: 7.7

1-Year Total Return ->

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CrossFirst Bankshares

A-Score: 5.6/10

Value: 6.3

Growth: 8.3

Quality: 7.8

Yield: 0.0

Momentum: 5.0

Volatility: 6.0

1-Year Total Return ->

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Macatawa Bank

A-Score: 5.1/10

Value: 5.4

Growth: 6.6

Quality: 8.0

Yield: 3.0

Momentum: 5.0

Volatility: 2.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

24.14$

Current Price

24.14$

Potential

-0.00%

Expected Cash-Flows