Heritage Financial Corporation reported net income of $19.2 million for the third quarter of 2025, up from $11.4 million a year earlier.
Chief executive officer Bryan McDonald said core earnings growth was supported by wider margins, stronger loan yields, and lower deposit costs. Net interest income rose 8.3% year over year, while deposits increased by 1.3% to US$5.86 billion. The loan-to-deposit ratio stood at 81.4%.
The bank reduced borrowings by 64% year to date, strengthening its balance sheet ahead of the planned acquisition of Olympic Bancorp and Kitsap Bank, expected to close in the first quarter of 2026.
The allowance for credit losses on loans rose to 1.13% of total loans, reflecting changes in loan composition, particularly in real estate construction. The company recorded a $1.6 million provision for loan credit losses during the quarter. Nonaccrual loans increased to $17.6 million, largely due to two residential construction exposures.
Meanwhile, capital ratios remained above regulatory thresholds, with a common equity tier 1 capital ratio of 12.4% and a total capital ratio of 13.8%. Liquidity sources totalled $2.51 billion, representing coverage of 42.8% of total deposits.
Noninterest income climbed to $8.3 million, driven by the absence of a prior-quarter loss on investment sales, while expenses rose 1.3% to $41.6 million due to incentive and merger-related costs.
For insurers covering banks under D&O and E&O lines, Heritage's results reflected sound capital discipline and credit risk management, supporting underwriting confidence in community and regional banks maintaining stable liquidity and capital positions.
The bank's conservative provisioning approach and reduction in wholesale funding also point to prudent risk practices, a key consideration for financial institution insurers amid ongoing margin and credit cycle pressures.
Heritage’s board declared a quarterly dividend of $0.24 per share, payable November 19 to shareholders of record as of November 5.
