Heritage Financial Corp Liquidation Value

Heritage Financial Corp (HFWA) completed the acquisition of Olympic Bancorp, Inc. on January 31, 2026, which dominates the balance sheet changes in this Q1 2026 10-Q. Total assets grew to $8.50B from the prior year-end base, total deposits expanded to $7.25B (+22.4% QoQ), and gross loans receivable increased to $5.72B (+19.6% QoQ), with $954.3M of that growth attributable to acquired Olympic loans at the merger close date. From a liquidation lens, the key dynamics are as follows.

Asset-side recovery: Cash and cash equivalents stand at $268.1M and receive 100% credit. The investment portfolio (AFS $1.00B fair value + HTM $668.3M amortized cost, fair value $617.5M) carries $50.8M of gross unrealized HTM losses and $45.5M of gross unrealized AFS losses, meaning a forced liquidation at fair value would realize approximately $96M of embedded loss across the combined portfolio relative to book. Loans receivable gross $5.72B, net of ACL $60.6M, with the ACL ratio holding at 1.06% of gross loans. Under a liquidation haircut (90-95% recovery on a performing commercial real estate-heavy book), expected recovery is roughly $5.1-5.5B against $5.66B net book value. Non-performing assets are modest at $15.8M (0.19% of assets), and nonaccrual loans declined QoQ from $21.0M to $15.0M despite the merger adding scale. Goodwill of $279.0M ($38.1M added from the Olympic merger) and core deposit intangibles of $50.2M (also merger-related, with $12.1M added) receive zero recovery under the lens. Together, intangibles represent approximately $329M of zero-recovery assets. BOLI of $144.9M carries uncertain liquidation value; filing does not separately disclose surrender value versus book.

Liability side at face value: Total deposits $7.25B, FHLB advances $20.0M, junior subordinated debentures $22.4M, other liabilities $91.8M. Total liabilities $7.38B. Book equity $1.12B.

Rough liquidation estimate: haircutting loans to 92% mid-point ($5.26B), holding investments at fair value ($1.62B), cash at par ($268M), zeroing goodwill and intangibles ($329M eliminated), and keeping all liabilities at face ($7.38B), leaves a thin but positive equity recovery buffer. The merger has expanded both sides of the balance sheet proportionally, with the goodwill and intangibles layer being the primary liquidation drag. Uninsured deposits of $2.83B (39.1% of total) are a subordination consideration but not a direct liquidation-value reduction. The filing discusses fair value marks on acquired loans (net discount of $21.95M) and goodwill in MD&A but does not separately tag the purchase price allocation detail in XBRL beyond what is available in TAG_CONTEXT.