Heritage Financial (NASDAQ:HFWA) executives said the company’s second-quarter results reflected higher net interest margin, stable credit quality and continued merger-related expenses as it moves toward a late-September systems conversion.
President and CEO Bryan McDonald said the integration with Kitsap Bank is “progressing as planned,” adding that the company expects to carry higher expenses until after the conversion
Chief Financial Officer Don Hinson said second-quarter results included the first full quarter of combined operations following the Olympic Bancorp merger, which affected comparisons with the prior quarter. Net Interest Margin Moves Higher Hinson said net interest margin increased to 3.99% in the second quarter, up from 3.96% in the first quarter and 3.51% in the second quarter of 2025. McDonald noted that the increase was three basis points on a reported basis, or eight basis points when excluding a first-quarter interest recovery on non-accrual loans.
Hinson said the margin improvement was driven primarily by higher yields on the investment portfolio and a lower cost of deposits. The cost of interest-bearing deposits fell to 1.67% from 1.71% in the prior quarter, which Hinson attributed largely to having a full-quarter impact from the Olympic merger compared with two months in the first quarter. However, Hinson told analysts that deposit costs may have reached their low point.