Heritage Financial Corporation Q1 FY2026 earnings call

• Bryan McDonald: Closed merger with Olympic, systems conversion in late September with higher expenses until after conversion, expected net interest margin improvement from Olympic's balance sheet and asset repricing. - Don Hinson: Reviewed balance sheet (loan, deposit, investment details), income statement (net interest income, provision for credit losses, noninterest expense), and capital (regulatory capital ratios). - Tony Chalfant: Reported strong credit quality, nonaccrual loans down, criticized loans stable, ORE property acquired. - Bryan McDonald: Provided loan production details (commercial lending group loan commitments, pipeline, loan growth expectation), deposit details (deposit increase, seasonality, pipeline), interest rate details for new loans. - Also mentioned recruiting bankers, acquisition integration on track.

Total loan balances increased $939 million in Q1. Loans acquired in Olympic totaled $954 million. Q1 yields on loan portfolio were 5.73%, 19 basis points higher than Q4. Total deposits increased $1.33 billion in Q1. Deposits acquired in Olympic merger totaled $1.39 billion. Cost of interest-bearing deposits decreased to 1.71% from 1.83% prior quarter. Investment balances increased $388 million from prior quarter. Yield on investment portfolio increased 17 basis points. Net interest margin increased to 3.96% from 3.72% prior quarter. Reversed provision for credit losses by $1.03 million. Nonaccrual loans totaled $15 million at quarter end, down $6 million from prior quarter. Criticized loans moved higher but stable as percentage of total loans. Nonperforming loans to total loans improved to 0.26% from 0.44% end of 2025.

• Systems conversion in late September will bring higher expenses until after conversion, expecting noninterest expense levels to change in subsequent quarters. - Expect net interest margin upward trajectory to continue primarily driven by new loans and repricing within existing loan portfolio. - Expect annualized loan growth rate in mid-single-digit range in next couple of quarters. - Deposit cost expected to stay around current levels with some offset from competition.

• Emerging risks in economy potential impact on credit quality. - Deposit competition could lead to upward migration in deposit costs. - Systems conversion execution risk.

Q: Jeff Rulis circled back on expenses, asking about merger costs and margin.

A: Don Hinson said expense run rate includes merger costs, margin benefited by interest recovery.

Q: Jackson Laurent asked on balance sheet strength, deposit costs, capital.

A: Bryan McDonald and Don Hinson provided details on loan growth trajectory, deposit competition impact, capital management.

Q: Unknown Analyst asked on recruiting, acquisition integration.

A: Bryan McDonald said recruiting bankers ongoing, acquisition integration on track.

Q: Unknown Analyst asked on loan growth, borrower sentiment, payoffs.

A: Bryan McDonald provided insights on loan pipeline, borrower sentiment, payoff trends.

Q: Unknown Analyst asked on credit trends, specific sectors.

A: Tony Chalfant mentioned C&I portfolio having some pressure due to economic uncertainty.