Heritage Financial surges 7% on strong earnings, Olympic merger approved
Regional bank beats quarterly estimates by nearly 20% as net interest margin expands to 3.72%
Heritage Financial Corporation shares jumped 7.2% on Thursday after the Washington-based regional bank reported fourth-quarter earnings that blew past analyst expectations and announced final regulatory approval for its acquisition of Olympic Bancorp.
The bank reported adjusted earnings per share of $0.66 for the fourth quarter of 2025, well ahead of the $0.55 consensus estimate and marking a 19.6% beat. Revenue reached $66.35 million, exceeding projections of $65.3 million, according to analyst research from Zacks Investment Research.
The strong performance reflects a significant turnaround from the same period last year, when earnings per share stood at just $0.34. Quarterly earnings growth year-over-year reached 66.7%, while revenue expanded 8.8% compared to the fourth quarter of 2024.
A key driver of the outperformance was Heritage Financial's expanding net interest margin, which improved 8 basis points to 3.72% from 3.64% in the third quarter and 3.36% a year earlier. The improvement came as net interest income increased by $1.0 million, or 1.7%, quarter-over-quarter.
Management has indicated the margin expansion could accelerate following the closing of the Olympic Bancorp deal, with the combined entity's net interest margin potentially approaching 4% by year-end, according to Seeking Alpha analysis of the company's guidance.
The Olympic Bancorp acquisition, initially announced in 2025, secured both regulatory and shareholder approvals and is now expected to close on or about January 31, 2026. The merger will boost Heritage Financial's pro forma assets to $8.6 billion and expand its presence in the competitive Puget Sound market, the company stated in its earnings press release.
Heritage Financial, based in Olympia, Washington, operates through its subsidiary Heritage Bank, providing commercial and personal banking, mortgage lending, and wealth management services to small and medium-sized enterprises. The Olympic acquisition represents a strategic move to deepen its footprint in the Pacific Northwest region.
The stock's surge to $28.14 brings it close to the consensus analyst target price of $28.40, with six analysts covering the stock—two rating it a buy and four recommending hold, according to market data. The company currently trades at a trailing price-to-earnings ratio of 15.92 and a forward P/E of 12.33, suggesting some valuation room remains if growth expectations materialize.
Despite the rally, Heritage Financial remains below its 52-week high of $26.91 reached earlier in the year, though it has recovered significantly from the 52-week low of $19.22. Institutional investors hold 87.5% of shares, reflecting strong interest from large asset managers in the regional banking sector.
The bank's dividend yield stands at 3.82%, with the most recent dividend of $0.95 per share paid in November. The next ex-dividend date is scheduled for January 28, 2026.
Looking ahead, investors will focus on the integration of Olympic Bancorp and whether management's margin improvement projections materialize. Regional banks have faced pressure from interest rate volatility and loan growth concerns, making Heritage Financial's ability to expand its net interest margin in the current environment particularly noteworthy.
The successful completion of the Olympic merger will be the next major catalyst for the stock, with the combined entity positioned as a larger player in the Pacific Northwest banking market. Management has emphasized the transaction's strategic importance in strengthening the company's competitive position and contributing to long-term profitability growth.