Heritage Financial Corporation reported solid first-quarter 2025 results anchored by notable deposit growth and continued margin expansion, even as total loan balances declined modestly due to elevated payoffs and prepayments. Net income of $13.9 million translated to an EPS of $0.41, with a net income margin of 17.1% and an operating margin of 19.9%. Net interest margin improved to 3.44% in Q1 2025 (from 3.36% in Q4 2024), primarily driven by lower funding costs despite a downshift in loan balances and a flat or modestly higher loan yield (5.45%, down 2 bps QoQ). Management framed these dynamics as a function of the Fed rate cuts enacted in Q4 2024 and a strategic balance sheet repositioning, including a securities trade that generated a pretax loss of $3.9 million but funded higher-yielding assets.
The balance sheet remained well-capitalized with tangible common equity and liquidity ample to support ongoing balance sheet optimization and selective loss trades. Total deposits rose by approximately $161 million in the quarter, with 95% of growth in non-maturity deposits, and the cost of interest-bearing deposits declined to 1.92% from 1.98% last quarter. The company emphasized discipline in non-interest expenses, guiding the quarterly run rate to roughly $41–$42 million for 2025 while continuing to pursue selective growth opportunities, including accretive acquisitions and strategic hires (e.g., the Spokane, WA team) to expand market presence without compromising expense controls.
Management communicated a constructive near-term outlook, with expectations of continued deposit strength, gradual margin improvement, and a 5–8% annualized loan-growth outlook for Q2 2025, supported by a solid loan pipeline and a diversified mix between commercial real estate and C&I lending. While macroeconomic uncertainty (tariffs, federal funding, and broader rate volatility) poses risk to forward production, Heritage remains confident in its risk-management framework and capital strength to navigate a challenging environment.