Heritage Financial Corporation (HFWA): Business Model Canvas [Dec-2025 Updated]

You're digging into the core engine of Heritage Financial Corporation, and honestly, what you find is a classic, disciplined Pacific Northwest community bank model that's actively expanding through smart mergers. As of Q2 2025, they were sitting on $7.1 billion in assets, funding that growth primarily through a strong core deposit base, which itself grew by $73.1 million in Q3 2025, even as they announced the $176.6 million acquisition of Olympic Bancorp. I've mapped out the nine building blocks for you below, showing precisely how their local relationship focus and conservative underwriting-which kept nonaccruals at just 0.37%-drives their $58.5 million Net Interest Income, so you can see the real-world mechanics of their strategy.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Key Partnerships

You're looking at the network of external entities that Heritage Financial Corporation relies on to execute its strategy, especially as it integrates a major acquisition. These aren't just vendors; they are critical to liquidity, scale, and operational backbone.

The most significant recent partnership development is the announced acquisition of Olympic Bancorp, Inc., the holding company for Kitsap Bank. This all-stock transaction, announced in Q3 2025, carried an implied total deal value of approximately $176.6 million, based on Heritage common stock trading at $24.64 on September 24, 2025. This deal adds 17 locations to Heritage Financial Corporation's footprint. Upon closing, Olympic shareholders will own approximately 17.4% of the combined company. The pro forma combined entity is projected to have total assets of approximately $8.8 billion, total loans of about $5.7 billion, and total deposits of around $7.2 billion. Heritage projects realizing approximately 18% earnings per share accretion following the full realization of operating efficiencies.

For short-term liquidity management, Heritage Financial Corporation maintains a key relationship with the Federal Home Loan Bank (FHLB). As of September 30, 2025, all outstanding borrowings, totaling $138.0 million, were with the FHLB and mature within one year. This represents a significant reduction from the $263.2 million in total borrowings held at June 30, 2025. The core deposit growth in 2025 year-to-date allowed Heritage Financial Corporation to reduce borrowings by $245 million, which is a 64% reduction.

The operational foundation relies heavily on core banking technology and processing vendors. Heritage Financial Corporation has selected the DNA account processing platform from Fiserv (formerly Open Solutions) to consolidate systems and support growth. This platform choice supports standardized operations across acquired entities.

Loan origination activity, which necessitates strong ties with local real estate developers and commercial brokers, shows consistent pipeline flow:

• New loan commitments in Q3 2025 reached $341.2 million, up from $267.6 million in Q2 2025.
• New loans funded in Q3 2025 were $174.5 million, compared to $139.9 million in Q2 2025.

The ownership structure is heavily weighted toward institutional capital, which influences strategic direction. As of late 2025, institutional investors hold 78.30% of the stock.

Here's a breakdown of the ownership concentration:

The concentration means that institutional sentiment definitely drives market perception. If you're tracking this, watch the 13F filings closely.

Finance: draft pro forma capital impact statement for Olympic acquisition by Monday.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Key Activities

You're looking at the core engine driving Heritage Financial Corporation (HFWA) results as of late 2025. The key activities center on disciplined credit management, aggressive balance sheet optimization, and strategic growth via acquisition.

Commercial and Residential Real Estate Loan Origination and Servicing

Heritage Financial Corporation (HFWA) focuses on originating and servicing real estate loans, though the mix saw some shifts in the third quarter of 2025. While overall loan balances were relatively flat, decreasing by $5.7 million, the activity within the portfolio shows where the teams are focusing their origination efforts. You see this in the new commitments figures.

Here are the hard numbers on loan production and portfolio movement for Q3 2025:

• New loan commitments totaled $341.2 million, up from $267.6 million in the second quarter of 2025.
• Commercial teams closed $317 million in new loan commitments, an increase from $248 million last quarter.
• New loans funded reached $174.5 million, up from $139.9 million in Q2 2025.
• Residential construction loans grew by $12.4 million, or 15.8%, driven by new production.
• Owner-occupied commercial real estate (CRE) loans increased by $7.8 million, or 0.8%, supported by $24.8 million in new production.
• Loan payoffs were significant, totaling $55.8 million, up from $51.0 million the prior quarter.
• The commercial and multifamily construction loan segment decreased by $4.1 million, or 1.1%, due to payoffs.
• The commercial loan pipeline ended the quarter at $511 million.

Strategic Balance Sheet Repositioning for Yield Improvement

A major activity is actively managing the balance sheet to improve profitability, especially as deposit costs shift. The team is clearly succeeding here, as evidenced by the margin expansion and the reduction in more expensive funding sources. Honestly, this is where the core earnings growth is coming from.

The results of this repositioning activity are clear in the key performance indicators for the third quarter of 2025:

Core Deposit Gathering

Attracting and retaining core deposits is a critical activity that directly funds loan growth and reduces reliance on wholesale funding. The success in this area is a key driver for strengthening the overall funding profile. You saw a solid increase in total deposits.

Total deposits increased by $73.1 million, or 1.3% (which is a 5.0% annualized pace), reaching $5.86 billion at September 30, 2025, up from $5.78 billion at June 30, 2025. Noninterest demand deposits were a bright spot, increasing by 2.1% (or 8.4% annualized) from the second quarter of 2025. This core deposit growth has been instrumental in balance sheet management, allowing Heritage Financial Corporation (HFWA) to reduce borrowings by $245 million, or 64%, year to date in 2025.

Maintaining Strong Capital and Credit Quality

Prudent credit quality management remains a non-negotiable activity. While nonaccrual loans did tick up due to specific exposures, the overall metrics show discipline, and capital ratios are well above required levels. The allowance for credit losses (ACL) on loans was 1.13% of loans receivable at September 30, 2025.

The key credit and capital metrics defining this activity are:

• Nonaccrual loans totaled $17.6 million, representing 0.37% of total loans.
• This 0.37% nonaccrual figure compares to 0.21% at the end of the second quarter.
• Classified loans (substandard or worse) decreased $5.3 million from the prior quarter to 2.0% of total loans.
• Net charge-offs to average loans for the quarter were just 0.01%.
• The Common Equity Tier 1 capital ratio stood at 12.4%.
• The Total Capital ratio was maintained at 13.8%.
• The Leverage Ratio was 10.5%.

Integrating Acquired Teams and Operations

Strategic growth through acquisition is a current, high-priority activity. Heritage Financial Corporation (HFWA) announced a definitive agreement to acquire Olympic Bancorp, Inc. on September 25, 2025. This integration effort involves absorbing new teams and operations, such as the new Spokane team mentioned, which will require significant internal focus. The company recorded $635,000 of merger-related expenses in Q3, which factored into the noninterest expense increase from the prior quarter. This strategic move is intended to enhance profitability and position the company for growth in the Puget Sound market.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Key Resources

When you look at the foundation of Heritage Financial Corporation (HFWA), you see tangible assets and a strong funding structure that supports its commercial banking focus in the Pacific Northwest.

The physical footprint and the balance sheet strength are critical here. You need to know the scale of operations and the quality of the funding sources to understand their capacity for lending and growth, especially with the pending Olympic Bancorp acquisition.

Here are the key quantitative resources supporting Heritage Financial Corporation as of late 2025, drawing from the most recent disclosures:

The deposit base is definitely a highlight. As of September 30, 2025, Heritage Financial Corporation reported total deposits reaching $5.86 billion. That growth, even a modest 1.3% increase from the linked quarter, shows the franchise is still attracting customer balances, which is key since the CEO noted this growth allowed them to reduce borrowings by 64% year to date in 2025. That's a significant de-risking move.

The physical network supports their market penetration strategy. Heritage Financial Corporation operates through its subsidiary, Heritage Bank, maintaining a presence across key regional markets:

• Washington state
• Oregon
• Idaho

This network comprises 51 banking offices. This physical presence is essential for maintaining the commercial relationship focus.

Capital strength is another core resource. The company maintained a well-capitalized status, evidenced by the reported TCE ratio of 9.4% as of Q2 2025. [cite: provided outline data] Furthermore, their Q3 2025 capital ratios remained above regulatory thresholds, with a Common Equity Tier 1 capital ratio at 12.4% and a Total Capital ratio at 13.8%.

Finally, the human capital in lending is a non-negotiable resource for a commercial bank. Heritage Bank's primary activity is commercial business lending, which constituted a significant portion of its loan portfolio. You're relying on those experienced commercial relationship managers and lending teams to execute on loan production, which totaled $626.2 million in new loans funded in 2024.

Finance: draft 13-week cash view by Friday.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Value Propositions

Local, relationship-based community banking in the Pacific Northwest.

• Operates 51 banking offices across Washington, Oregon, and Idaho.
• Pending acquisition of Olympic Bancorp/Kitsap Bank targets 14% combined deposit market share in the Kitsap and Olympic Peninsulas.

Conservative underwriting and stable credit quality.

Full suite of commercial and retail banking products.

• Net Interest Margin (NIM) for Q3 2025 reached 3.64%.
• Yield on loans increased to 5.53% in Q3 2025.
• Cost of interest bearing deposits decreased to 1.89% in Q3 2025.
• Total deposits reached $5.86 billion at September 30, 2025.

Financial strength and stability, reducing borrowings by $245 million year-to-date 2025.

Expertise in commercial real estate and construction lending.

• Residential construction loans grew by 15.8% during the third quarter of 2025.
• Average interest rate for new commercial loans in Q3 2025 was 6.67%.
• New commercial loan commitments targeted for Q4 2025 are approximately $320 million.
• Commercial and multifamily construction loans saw a decrease of 1.1% in Q3 2025 due to payoffs.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Customer Relationships

You're looking at how Heritage Financial Corporation keeps its clients close, which is defintely key for a regional bank. Their approach blends personal touch with digital access, all grounded in their local footprint.

Dedicated commercial relationship officers for business clients are a core part of the strategy for small and medium-sized businesses in Washington, Oregon, and Idaho. This focus on dedicated support for commercial clients is actively being expanded; for instance, in the first quarter of 2025, Heritage Financial Corporation expanded into Spokane, Washington, with the hiring of three experienced commercial bankers.

The high-touch, personalized service through branch network is supported by a physical presence spanning three states. As of late 2025, Heritage Bank maintains a network of 51 banking offices across Washington, Oregon, and Idaho, including operations under the Whidbey Island Bank name on Whidbey Island.

For day-to-day transactions, automated self-service via mobile and online banking platforms handles routine needs, supporting the branch staff. While specific digital adoption rates aren't public, the growth in core deposits suggests clients are actively using the bank's channels.

The foundation of the relationship model rests on long-term, sticky core deposit relationships. The health of these relationships is reflected in the balance sheet figures, showing a consistent focus on attracting and retaining customer funds rather than relying heavily on wholesale funding sources. As of September 30, 2025, total deposits stood at US$5.86 billion.

Here's a quick look at the composition of those deposits as of September 30, 2025, showing where the core relationship balances reside:

The growth in these deposits is a key indicator of relationship strength; non-maturity deposits increased by $104.5 million, or 2.2%, from the linked quarter ending June 30, 2025.

Community engagement and local decision-making are inherent to Heritage Financial Corporation's structure as the holding company of Heritage Bank, which is a Washington state-chartered full-service commercial bank. The company is headquartered in Olympia, Washington, and its strategy involves completing acquisitions of other regional banks to enhance its footprint and local market knowledge.

• The bank provides financial solutions to small and medium-sized businesses.
• Operations span Washington, Oregon, and Idaho.
• The bank has completed multiple acquisitions since 2010 to deepen community presence.
• The loan-to-deposit ratio stood at 81.4% at September 30, 2025, indicating a strong utilization of core deposits for lending.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Channels

You're looking at how Heritage Financial Corporation (HFWA) gets its services to its customers, which is heavily anchored in its regional physical presence across the Pacific Northwest, supplemented by digital access points. The core of their distribution remains the brick-and-mortar locations.

Physical branch network of 51 banking offices. Heritage Bank, the sole wholly-owned banking subsidiary, operates a network that covers Washington, Oregon, and Idaho. As of late 2025 reporting, this network is comprised of 50 branches and one dedicated Loan Production Office (LPO). This physical footprint supports their primary business of commercial lending and deposit relationships with small and medium-sized businesses and individuals in their core markets.

The physical network also includes operations under the Whidbey Island Bank name on Whidbey Island, Washington, which is integrated into the total office count.

The delivery of services extends beyond the lobby, utilizing digital means to serve a modern customer base. Heritage Financial continues to invest in these platforms to improve operational efficiency.

• Online banking portal for retail and treasury management services. This portal serves as a primary interface for business clients needing treasury management functions and for all retail customers managing their accounts digitally.
• Mobile banking application for consumer access. The mobile application allows for on-the-go account management, transfers, and deposits for consumers.
• Loan Production Offices (LPOs) for specialized lending. The single LPO mentioned supports specialized lending activities outside the full-service branch structure.
• ATM network access. Access is provided through the bank's own network and likely through shared networks, though the exact number of proprietary ATMs isn't explicitly stated in the latest reports.

To give you a sense of the scale of the entity supporting these channels as of the third quarter of 2025, the total number of shares of common stock outstanding was 33,953,194 as of July 31, 2025. Also, total deposits reached $5.86 billion at September 30, 2025.

The growth in core deposits, increasing by $73.1 million, or 1.3%, from the second quarter of 2025 to the third quarter of 2025, shows continued customer engagement across these channels. Finance: draft 13-week cash view by Friday.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Customer Segments

You're looking at the core groups Heritage Financial Corporation (HFWA) serves across Washington, Oregon, and Idaho as of late 2025. Honestly, the public filings give us a clear look at the lending side, which is where we can map a lot of the business segments directly.

The overall funding base supporting these segments stood at $5.86 billion in total deposits as of September 30, 2025. A key trend here is the shift in how customers are holding their money; non-maturity deposits grew by 2.2% from June 30, 2025, driven by increases in noninterest bearing demand and interest bearing demand accounts. This suggests strong operational banking relationships with the customer base.

Here's a breakdown of the segments we can quantify based on the loan portfolio activity through the third quarter of 2025:

The geographic footprint directly supports the Pacific Northwest focus, with Heritage Bank operating 50 branches and one loan production office across Washington, Oregon, and Idaho as of late 2025. This physical presence is key for serving local SMBs and CRE clients.

For the other listed segments, the data is less direct, but we can infer activity:

• Individual retail consumers and households: This group is the source of the strong non-maturity deposit growth, which increased by $104.5 million, or 2.2%, from June 30, 2025. The consumer portfolio saw total charge-offs of $188,000 in Q1 2025 (half of the total $376,000 charge-offs).
• Non-profit organizations and agricultural producers: While these are typically served under the broader commercial/business banking umbrella, specific portfolio allocations for these groups aren't itemized in the latest reports.
• High-net-worth individuals seeking private banking services: This is usually captured within the overall deposit base and high-value commercial/CRE relationships, but no separate private banking metric is available.

It's worth noting the bank is actively managing its balance sheet ahead of the planned acquisition of Olympic Bancorp, Inc., which is expected to close in the first quarter of 2026. This acquisition will definitely shift the customer segment mix, especially in the Kitsap Bank footprint.

Finance: draft a sensitivity analysis on the impact of a 10% shift in non-owner occupied CRE loan exposure based on Q3 2025 balances by next Tuesday.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Cost Structure

You're looking at the core outflows for Heritage Financial Corporation (HFWA) as of late 2025, focusing on what drives the expense side of the equation. It's all about managing people, money, and physical presence.

Employee compensation and benefits, which you know is a primary noninterest expense driver for any service-based business, saw Compensation and employee benefits hit $26,082 thousand for the third quarter of 2025. Looking at the year-to-date trend, that expense totaled $77,348 thousand for the nine months ended September 30, 2025. That's where a significant chunk of the operational budget goes, naturally.

For the quarterly run rate, Heritage Financial Corporation guided or reported quarterly noninterest expenses around $41.6 million for the third quarter of 2025. This figure reflects ongoing operational costs, including those personnel expenses, plus other overhead.

The cost of money is always critical. You'll want to track the interest expense on deposits and borrowings closely. For the third quarter of 2025, the cost of interest-bearing deposits settled at 1.89%. To give you context on the liabilities side for Q3 2025, total interest bearing deposits were $4,168,862 thousand, incurring $59,760 thousand in interest paid. Total interest bearing liabilities, which includes borrowings, were $4,424,530 thousand, with total interest paid on those liabilities reaching $69,330 thousand.

Credit quality costs are another major variable. The provision for credit losses on loans for Q3 2025 was reported at $1.6 million. Additionally, there was a $212 thousand provision for credit losses on unfunded commitments during that same quarter, primarily due to increased unfunded exposure on construction loans. That's a key risk management outflow you need to monitor.

The physical footprint cost is relatively stable but important. Occupancy and equipment costs for the network of 50 branches and one loan production office across Washington, Oregon, and Idaho were $4,665 thousand in Q3 2025. The bank does operate under the Whidbey Island Bank name on Whidbey Island, Washington, which is part of that network.

Here's a quick look at those key cost drivers for the third quarter of 2025, in thousands of US dollars, unless noted otherwise:

You should also keep an eye on the underlying drivers that feed into these totals:

• Total deposits stood at $5.86 billion as of September 30, 2025.
• The allowance for credit losses (ACL) on loans was 1.13% of loans receivable at September 30, 2025.
• The bank reduced borrowings by 64% year to date in 2025, which helps lower the interest expense component.
• The loan-to-deposit ratio was 81.4% at the end of Q3 2025.

Finance: draft 13-week cash view by Friday.

Heritage Financial Corporation (HFWA) - Canvas Business Model: Revenue Streams

The revenue streams for Heritage Financial Corporation (HFWA) in late 2025 are fundamentally driven by its core banking activities, primarily interest income, supplemented by fee-based services. You see this structure reflected clearly in the Q3 2025 results.

Net Interest Income (NII), the difference between interest earned on assets and interest paid on liabilities, is the largest component. For Q3 2025, NII increased to $58.5 million. This followed a sequential increase of 4.3% from the prior quarter, and represented an 8.3% rise year over year. This momentum was supported by an improving Net Interest Margin (NIM) which reached 3.64% in Q3 2025, up 13 basis points from Q2 2025.

Interest income from loans is central to NII. The portfolio yield on loans was reported at 5.53% in Q3 2025. Total interest income for the third quarter of 2025 was $79.51 million. The average third quarter interest rate for new commercial loans was 6.67%, with all new loans priced at 6.71%.

Non-interest income, derived from service charges, fees, and treasury management activities, provides a stable, albeit smaller, revenue source. Total non-interest income for Q3 2025 climbed to $8.33 million, a significant increase from $1.84 million in the same quarter last year. This was partly due to the absence of a prior-quarter loss on investment sales.

Interest income from investment securities is another piece of the total interest earned. The investment portfolio duration stood at 4.48 years as of Q3 2025. The yield on the investment portfolio itself was 4.55% in Q3 2025. Management noted that they halted loss trade activity in Q3 2025 and did not purchase any new securities during that quarter.

Mortgage banking income, which includes revenue from loan sales and servicing, contributes to the non-interest income stream. While a specific mortgage banking income figure isn't isolated here, you can see the underlying activity: new loan funded volume increased to $174.5 million in Q3 2025, up from $139.9 million in Q2 2025. Loan prepayments were $75.6 million for the quarter.

Here's a quick look at the key revenue components for Q3 2025:

The composition of the funding side also impacts the net revenue realized, as seen by the cost of funds:

• Cost of interest-bearing deposits fell to 1.89% in Q3 2025.
• Total deposits grew by $73.1 million quarter-over-quarter.
• Noninterest-bearing deposits increased by 2.1% sequentially.

The company reduced borrowings by $245 million, or 64%, year to date, which directly supports the NIM expansion by lowering interest expense.