Heritage Financial (HFWA) 23 Apr 212021 Q1 Earnings call transcript

Company Profile

Participants

Jeff Deuel	President and CEO
Don Hinson	Chief Financial Officer
Bryan McDonald	Executive VP & COO
Tony Chalfant	Chief Credit Officer
Matthew Clark	Piper Sandler
Jeff Rulis	D.A. Davidson
Jackie Bohlen	KBW
David Feaster	Raymond James
Andrew Terrell	Stephens
Jackie Bohlen	KBW

Call transcript

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Heritage Financial Earnings Call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session, instruction given to you at that time. [Operator Instructions] And as a reminder, today’s call is being recorded. to conference like to now would turn over the Mr. I Deuel. Jeff ahead. Please go

Jeff Deuel

is of and Thank Don Chief who Officer; and This in you, Hinson, may Credit Officer. and Deuel, good later. to Bryan Cynthia. Operating Welcome Chief morning Financial everyone MacDonald, me Attending Heritage. with who Officer; called listen Tony Jeff are Chief CEO our those Chalfant,

the you call. release out it this have hopefully, had went and review the earnings Our prior pre-market, to to opportunity morning

We an portion presentation our posted have the website. on investor also quarter first updated Investor of Relations

call. We the refer imposed on will environment reference are financial that presentation us. Overall, quarter, of release. all the the during very in pandemic the particularly statements for has with the our Please results that forward-looking been we pleased to press first given

We of are their during very team period strong performance and also of time. proud difficult our very

by expenses Round rate first been declining environment, quarter PPP in the participation managed influenced carefully X. full have results The and

The reserve of to some combination of last Additionally, an on of first as allowed credit far. managing more trends ROI well together played to for and and our forecast, enabled long-standing has with recapture us for of X.XX%. so quarter, discipline, has build the report that credit from has factors of $X.XX our these EPS And year. report focus us improving loan an out economic us as favorable concentrations the well quality

most reopened widespread deployment to focused more forgiveness our our first X phase, in our portfolio prospects. and Round PPP and outreach management While moving teams success. with PPP of Round are overall as to well on branch and traditional was together loan into team's Round as vaccine focus in lobbies volume muted With quarter, with continued be now X customers the notable on region, X

page completing into rapidly the in XXXX. deposits of the growing already pipeline well and for the and launched year deck. report have have year, are during has automate one origination want past of on continue over that loan continued technology to to balance this positions and process add which initiative, balance that will a focus that us initiatives seeing we which of important the we I that on platform highlighted of results pleased also we internally, I'm will We the loans, our to enhance six to CL-XXX the year. investor

allow will on in foundation our Additionally, across and launch the June platform, to more client us more us will initiatives enhance efficient, a enable capacity the minutes the undertakings be very move customer to team into to We'll be for for XXX financial cover our new moving to will CRM becomes results. seamless bank. provide service exciting production. Heritage few now will to these of It's experience. and team Both the Don, who these two take a

Don Hinson

Jeff. you, Thank

As drivers overall be positive Jeff in this main of of some QX. QX mentioned, profitability reviewing very performance. the was I'll

mostly average of strong of the all to prior financial XXXX. of to percentage The similar growth compared average fewer of decrease was partially of period QX. a the percentage XX.X% decrease was by average on to margin. interest the a investor increased due the in compared deposits in Other overall the higher offset in average in prior X the of increase in in the was offset line page earning the was was loan due interest X.X% balances accretion And shown earning this assets basis decrease QX only of earning size PPP loans earning increase composition quarter. will interest cash X in to Starting a impact are assets average assets, comparisons loans point basis interest As assets. by lending were Trends Interest than presentation. in a of This QX. to liquidity. with through item was results, quarter. The margin quarter of deposit affecting earning in loans, excess on to mainly a in quarter. factors earning percentage an unless XX more anything QX. loan a from will increased that the walk from Removing decrease net during the in our point from yield there non-accrual million impacts to few to $XXX net be including of increase QX assets of net minutes. due discount of PPP positive payoff production due fourth to mostly net points increase noted I and income, prior Bryan income the the with interest otherwise in discuss prior a slight and days This basis

points work We prior to decreasing in continue basis our deposits, down with of deposits quarter. the X total interest the bearing cost

XX cost can investor decreased an for cost More which points to on in low XX page deposits basis deposits and is Our growth found bank. presentation. time deposit total QX all regarding the be information of the of

us a QX was As X loan strong. customer factors, deposit strongly into of accounts. a significant very mentioned, continue ratios balance bank. deposit of increased This all gives quarter capital to in prior combination with as growth the the strong capital most of we thresholds. of regulatory and I remain a and the sheet significant to capitalized which proceeds well above PPP tremendous growth was combination flexibility previously due Even our grow liquidity was of growth, The Round

non-interest release, $X.X were that totaling due As QX. million mentioned in gains substantially in recognized earnings mostly significant income decreased to the

the in decrease loan prior quarter. the a experienced we sale addition, gains mortgage In from

will somewhat of that loan sale quarterly than in they the gains XXXX in were be expect XXXX. We lower half last

cost quarter, Non-interest our asset X.XX% X.XX% expense expense We in realize prior in of ratio in of and our were the and cost to decreased due ratio QX to completed measures overhead branch consolidations, the from compared due relating the X.XX% continue to in QX. we to we all XXXX. for in mostly overhead in occurred the consolidations decreased Since to which savings substantially see the the improvement QX management nice prior growth in combination January. able the to quarter, mid-January, QX to

non-interest costs expense amount approximately Of for Round million direct per this million or QX direct for QX are for in in related loans, to in – and commitments. Additionally, QX approximately $X.X the quarter of and XXX,XXX, were from XXX,XXX QX to expected XXX,XXX in associated from originations. was PPP PPP reversal costs with levels the to the amount, $X.X costs QX of through XXX,XXX of this allowance QX to allowance deferred unfunded next Offsetting approximately provision X QX. A of related year These million. related benefited deferred was in to $X.X decrease the significant credit of losses earnings the impact to year. was for for costs

lower loan and an due recovery in to provision QX, factor partly was significant outlook. Although due balances, improved net to the most the economic a reversal for

In on seeing of pass the quality our improvements many update in who quality I to credit have are addition, credit an metrics. call will Tony, these we metrics. on will now

Tony Chalfant

Don. you, Thank

ended were level more with than of were several quality loans. early the metrics, we on stated workouts in We pandemic in interest. charge-offs of recoveries These improvement consumer in by quarter was our on impacted a first of XXXX. commercial the long successful the of since meaningful primarily loan that loans of start saw were recovering non-accrual we COVID-XX. principal already non-accrual quarter, first directly offset credit where you the accrued been a As net to important to by had modest term onset recoveries status, in the note and borrower's not the and the $XXX,XXX, the and prior all pandemic, were It's the these

non-accrual For X%. or the million loans declined quarter, $X.X by

a As accrual loans last back $X.X status and real XXst, loans. was or A secured down this on quarter of at million $XX.X were the non-accrual or million XX.X%. are that $XX.X the long we've for during of a a problem of pay million much accounted move to loans and of of while a reduction, lower loan by all of performance, was loans than $XXX,XXX Potential quarters. addition borrower March generally of remainder decrease several new were category pay experienced in was the quarter the a transfer three this TDRs a payoffs to X.XX% first loans for status, industry. downs total The the over by component status. significant impacted have payment Additions to to history during back non-accrual the performing Loan offset upgraded well decreased to rating, accrual status. and loans COVID-XX The reclassified pass estate. to by loans totaled

our of For to quality, I more information investor you XX credit would page presentation. direct our on

seeing we loan As we've COVID-XX recover, infected requests modification many Act. reduced continue of Cares of see to providing levels been borrowers that our under the we're

SBA-PPP end, totaling are these quarter end and payment were a and XX now remaining our more there – In approximately over will rollout, over Bryan, should loans, of the at loans a XXXX. an on XXX who that back loan remained restaurant $XX.X the credit deferral turn Of status. modified to environment, million, improved XX% of loans from several call update hotel is quarters. movement continue This As continued totaling to production down vaccine the see activity. the industries. I'll our modification and a $XX.X in or normalized up with $XX.X in believe next XX business million we summary, loan metrics to million we the have

Bryan McDonald

going results, provide first Tony. group. our our Thanks, with production to quarter lending commercial detail I'm on starting

closed ended million commitments, commercial XXXX. quarter, from up first million from $XXX quarter, first quarter $XXX million closed million, million in quarter $XXX up loan XXXX. quarter, of up teams The our the the first from loan the of in XX% $XXX last quarter at the and of last $XXX $XXX from at For million pipeline commercial the and end new up

our million. accelerate. Consumer to discussions in consumer X% in the XXXX. discontinuation demand due business first in the $XX last rate, and the in to quarter as has for the of XXXX. and loan on decline first SBA-PPP reduced was decreased balances expansion $XX versus last $XX down part million indirect production quarter, during projects excluding million decline million which the balances the during loan increased two from from of to utilization months, due plans first quarter was lending continues million with down significantly $XX New by quarter first approximately quarter, customers The XXXX the Loans of $XX a capital

quarter. excluding interest up from first quarter X.XX% XX points loans, loans PPP X.XX%, basis to rate for last Moving was new commercial rates, interest our which average is

of million relatively quarter be or higher end. sale in at the million Refinances in loans $XX quarter X.XX% the a for closer XX% anticipate basis of for department - XX closed The $XX first million compared of and quarter quarter $XX and In Based million to quarter, up million $X.X the on The quarter. going made XXXX pipeline second of rate mortgage of the portfolio third X.XX%, for million $XX will was XXXX, to up addition, million on from loans, excluding of in into the mix pipeline the quarter quarter mortgage quarter versus and XXXX. all XXXX. loans, points QX, second $XX in PPP pipeline ended we gain quarter. excuse first me the the fourth first new first the in $XX at average new quarter loans, last the of the closed for the

SBA-PPP. to on Moving

the August. extended During May application current details. the total of The and by continue to the expires we to X expiration the until we for PPP taking And end million. loans progress will continues page provided bulk program X additional on the deck investor we end for customers. PPP applications of sooner. anticipate smoothly anticipate forgiveness X X the approach unless of XX application plan we for million, the processed process volume based And for Round $XXX XXXX direct now applications loan quarter would for having We to of Round flow, you close Round SBA-PPP to Round SBA-PPP PPP date $XXX funding

mid-May. Round receiving customers now to by requests back Jeff. accepting are PPP from will forgiveness for call applications I start X want to We phase the apply for and planning turn are to already who this

Jeff Deuel

you, Thank Bryan.

with to are mentioned earlier, very we performance pleased our I date. As

ahead. we've delighted position also pivoting the the from been year, to on are environment We for last focusing positive defensive in be and the away more

for coming Most helped that. loans We The are dividends last to referred seeing to X a nice relationship pipeline existing deals upswing we high the see across with evidence by PPP come. a we quality pay from of our customer customers heavy with by was in our to and Portland, a year. new who years new with will PPP recently lifting team continue that prospects. in significant And Round new C&I us bank

in presence which Seattle, new our will to is our Bellevue business opportunities, positions many Additionally, offer of for the us, relatively those still and Portland help in exciting core new markets. establish further and continues markets and

With the most loan is today, rollout, severely over quarter believe improve. the many given the to to continue things up, portfolio latest and as we continue a of vaccine businesses should what package, in And impacted much ago. our of risk know the we just stimulus the improved performance open

this We long-term are get some past also loans problem happy to resolved see quarter.

- and a address and strong advantage levels foundation remaining to and opportunities. it to challenges of us capital provides liquidity make take any Our our with robust

efficient and continue leadership operations, and allow that us long consistent, improvements deliver to the supported process all efficiencies metrics. Our of in our and to focuses by implement continues growth, term performance to identify financial team will on

That's evidence focus conclusion in see the ready per increase average and open notable comments. up the prepared can call the of decline employee. anyone questions our assets of the to have. in FTE to this and branch might and we're Cynthia, deposits increase average You in any per the numbers

Operator

Certainly. this at no I'm time. [Operator in showing queue Instructions] questions

Jeff Deuel

little the many we'll move coming people And Well, you. we'll in a Cynthia, see But unusual. of week. That's thank forward. these

Unidentified Company Representative

I interrupt if one people queue. do moment, Jeff, people. in see few the four have I for just could Cynthia, we a

Operator

the a One and here. moment, few moment. with one Clark take question line. the to Piper your Okay, questioners see is line and first we'll we'll go I from do And first And Sandler. Matthew And actually, open.

Matthew Clark

the is curveball thrown [ph] the star NII good margin or million Obviously, balance outlook to I guess hone on in sounds not of it's core sheet the going to growing you as NII Hey, in first try the NII leveraging the morning, kind on here. with with a one be and from to up. core stabilizing, I growth But plan to core of pipeline your I know, maybe with guess thoughts your stronger NIM net the well, like know, XXX? zeros loan you wanted securities one [ph] $XX of core want get to going to, question just overall it's forward grow I core

Jeff Deuel

for Thanks, the question. Matt

questions when a Just comment, worry you interested. sidebar you get don't if anybody's

jump we cash joined us that's last to And through loan you in done portfolio, this, glad is we're And to the think know, more us we the Yeah, So had that's in was But on I going quarter our side. were leverage to in. overarching about too. what growing probably general. the project than just a better you this feeling of in just which on combination of quarter. investment maybe also, be obviously, leveraging front

So Don, to to anything you that? want add

Don Hinson

Sure.

still next by are our coming few quarters. that to which to going continue yields loan to do related think we continued just the continue the over going I position, to down think offset we're of core I know, some some is margin, leverage You pressure to on cash experience grow. the

ramp forward, the down kind the to loans quarters. up, the cash so we know, hoping continue subside the on million, you again, that, now more next we're of to Round addition But in bit on But of some added come some a think in I we'll as getting will that few of you loan to originations that kind and $XXX core leverage margin investments knows, see QX, production of over that, of through quite think, we will I almost investments. going do you combination PPP. X know, position a

Matthew Clark

increase maybe the what terms projects, on specifically the seeing, in pipeline, of footprint? Okay. region And then and within in your you're by terms of just

Jeff Deuel

Bryan, you take want to that one?

Bryan McDonald

Sure. Sure, Matthew.

- to know, be board. it's it's it's you really, honest, So the across

lot Portland down we from of And at counties in requests market looking a seen know, as an then, just then uptick customers, have know, new around in County, lot you also seen quarter-over-quarter. and Seattle, - know, in well as You big large of and also on. on King you a side then Bellevue Bellevue our increases. Seattle, the We've development the you also, know, there's a are detail either customers. significant you the the but And in of going seeing market, know, jump

an So development uptick requests. we're in getting

across board, really couple heading Matt, the last are the So all been you know, categories up really months.

Don Hinson

seeing based seize we're executive us. Matt, - least a is deals. for the few And actions a [ph] loan anecdotal to great on dissert tend day, which I how sign would point every know, measure of we use production committee kind we're you where from went a I [ph] something And of frequently feedback. at to at very

Matthew Clark

for M&A, great. overall having, terms And That's me, you're any just activity then update last just discussions one of and there? on in

Jeff Deuel

the seems quiet Well, country, pretty unlike the the rest Northwest Pacific of to be still.

is start I giving think would half that quiet. things of gives few ago, a for expectation. And ideal because where to distraction. that's second I see on time been kind to thinking fairly would the we first think these that are messaging the the more it us, we've without be half the in move about primarily, undertakings now, minutes of that might us we talked launch We based be year,

So itself. we're if But now presents anything are things quiet. ready right fairly

Matthew Clark

Okay, thank you.

Jeff Deuel

Thank you.

Operator

you. Thank

Rulis Jeff Davidson. with your from is line comes open. question next Our D.A. And

Jeff Rulis

have Thank you. Yeah, questions. Jeff, we always

just… So

Jeff Deuel

I was real…

Jeff Rulis

going of a kind branch far. that update, this And so question. rest? might just, question which closures impact then the looking expenses And guess, wanted seen guess, it the of next if expenses, it does it closures I add an three additional translate Thanks? to it part, then so kind what –how and on how's of thereafter, at I of then sort impacted of customers retention kind in and I on to the you've as

Jeff Deuel

Don do let expense answer first the and third. the question. I'll the I'll

feeling in things is terms runoff. so impacted We the terms what well accounts. the quite of branch of that's just over top, have And sheet, what the can within that for good on was pretty for the actions took. months, deposits retention, locations, deposits know, even last the the been location been we the about monitoring to but you And consolidating we're you still not runoff, seeing, one watching numbers overly balance has are we're also imagine in that are that liquidity distant-relative budgeted we of not couple result of in by those but good

I was that, Additional put our do industry, closures, expenses. it control that I know, expenses, always would branch footprint. we're just to analyzing determine, in would And you the and just seen in eight for looking like or that know, to be we're And us you'll on to you of anyways, much what pare we'll have back all can think that compatriots think time. laser-focused branch the we branches always general, activity at area you more XX% I you in footprint. the see But over

we're eight these with going more, wait to a see going know, do So longer we again. to little done we've eight you we're bit before and not how rush to out step

in are as think and XXXX. that taking we're it's we any appropriate think I we progress under that steps organization through is expense review, the the

Don Hinson

on this. Yeah. in, Jeff I will yeah jump

in that these. about future that, most more of XXX. savings As you'll I you comments, branch the mentioned were quarters baked my were on into the to not the Overall, per QX, going cost much there's so in savings see know, Jeff,

on million $X basis. about it's annualized So

guess I about – in say given numbers. QX not we've that, have I more its much because So to

Jeff Rulis

back that's may you kind recall on region. better. quiet pencils you I'll guess readiness feeling Don. It’s Jeff, the at what's in be appetite, more I M&A. it sort think up standpoint, as quiet? mentioned risk wonderful. say, do to And restart our maybe Certainly the seller's time, it your was a you're is right. from that a year Thanks, it I circle of try All keeping maybe Okay. last down to on But just - And this

the really that is versus So pace the I Is wanted just it readiness. to that your confirm - correct? seller

Jeff Deuel

right time year. in move, this of And We we got did front that given as we about I end feeling and progressed, last the we of better pencils down think started the And what go year, correct. was Absolutely to saw year things. the the us.

you, itself if ready And So are the agree it's being for Jeff, these I an not presents. roll think it presents go the ready last if I months. think been us we've to because to – are quiet. I of It's couple opportunity we do sellers not with it if

Jeff Rulis

Okay. sort gives I to of then management M&A And stall that alternative capital at adept longer kind guess if should get of I pretty guess we it is the year, the buyback.

you'd beyond other obviously But M&A look priorities The capital deployment that assume play the avenues other out? at if organic growth. that funding doesn't

Jeff Deuel

be in front form think notion that probably Yeah, also I I always choice in. us. is of of in something be see to develop continue interested think we the would, There potential top our loan of to would opportunities the is we'd growth which teams,

on of There something. a on have conversations new into production that that are in added folks our the going develop We couple could to team area side.

So that front side could us other and usual conversations well top whole have lot all of pretty to a M&A just we there we're the leadership things people mind out the that of connected wanted of to keep that the the have banks. with on and in is continued fortunately to team point develop, we is

So, am to if call. something that decides comfortable us to we are close enough do give that remember a will someone staying I they that

Jeff Rulis

you. thank Okay,

Jeff Deuel

you. Thank

Operator

you. Thank

the question And Jackie from next comes Our of Bohlen is with KBW. line line open. your

Jackie Bohlen

morning. good Hi,

Jeff Deuel

Good morning.

Jackie Bohlen

I of to dig well starting kind a is with little still with especially What even the forecast already reserved, XXXX another where you in of put with to you've the on the view happen January to at at look there. like. recapture? mind, in capture will With if year do look only next need before X, in economic you to wanted have improved I you're ratio the were some that quarters order that would point reserve really not and which into bit, the

Jeff Deuel

more now to as we're portion of Cowlitz, this or the and in risk in week, that quarter I a just we and But is into backwards even material other earlier about in may our Don being portfolio Tony. sit we're better sit the where it feel what on is, region said want being feeling Longview feeling now think that gone couple and of what we've much counties we with about which can Jackie, of Tacoma institution, But the one in, you the Cowlitz high presentation than I phases the to categories. falls is is where that Well, Pierce, see. things join change we last which as the see January. right ago, can Pierce unfold going good We are think that happen I and we County. fairly things in is where in and from a is, for is just we think I the in County the we're cautious to are that optimistic that a But were December, where one waiting being aware where

I we're deteriorate, gradual that would in stop well. which releasing hoping think if growth, And in see potentially I taking the think quality portfolio as it for future. be, obviously are would the that other things loan steps. we we And us happy from that we're

releases I progress think year. they take potentially I to throughout have to that think things you the are, way continuing expect continue us reality the will continuing the to and that the would probably is -

Tony Chalfant

that guess experiencing we just start I are losses. to I that. add haven't still Jackie, think obviously, Jeff, on losses I'll Yeah,

this until basis. So but itself quarter-by-quarter our some loan is to continue this the have work loss really over growth take some it significant probably and we history losses we will start side, or the still down a - on year, seeing low do on will

Jackie Bohlen

That's But know of of very just loan discussed helpful. I you. pipeline. a prepared talking remarks time the Thank robust And had. the I also one deposit other that about one the we pipeline. Okay. spent one that lot

the stimulus about in you And for growth very so in growth just of expectations strong obviously have I there, from light quarter. was curious your particularly

So how prompting of about the answer. know fluctuation I balance rest And you're the thinking for I'm year. if don't to

Jeff Deuel

you know our let our is the an deposits things. precious. business who precious brought run want it realize spending it stop but forgiveness And with - PPP Jackie, into to we that I'll occurs going environment. things originating well, they the of one expectation are the got the and we other going Don, that and jump that as many few related owners is deposit spent portion We is it and of years bigger for the using in recognize off of that, and we growth future. good And haven't on deposits we're will in the deposits are last focus is in way in the because a we rate, a that feel are ability organization those even don't to in want the and proceeds really that probably this to start deposits

relationships to those expand and come and also us evolve grow they continue the So, base and relationships of customers with too. help

our in of you now us could ball Don, we deposits, right we rate about So a growth taken though for longer maybe have the for built forward. that's developing deposits for eye preponderance even off not term. the talk the going have

Don Hinson

such the just we remove deposit flat unusual think significant if here. even very mean, first April, amount balances. you times still we pretty did QX, even But growth. quarter, in the saw I contraction sometimes dollar I deposit of PPP originations, in mostly Well, and normally we're we the through through see of

here. territory unchartered an in we're So

flow accounts. see the over bank are flatten deposits growth would expect and the to the think because liable over these to of of which time out amounts, people are I that time we then out deposit we some that reducing start will again in that their

We as of result a PPP added related quite accounts have a the few origination.

maybe those balances but expecting at stick as to we're high around, overall. So, not least

overall I year, about be but when I the all think people out. deposits taking still some the see muted their we'll think So somewhat would more of rest the growth comfortable on It - feel deposit our for growth. depends

Jackie Bohlen

everyone. thank right, All Okay. you

Jeff Deuel

wanted just moves. your go release. Jackie, just highlight us back to industry that to gave to market Jackie. Thanks, of likes of to see is advice gradual question some that the want I about a piece the reserve

So any to it release on be going gradual. the reserve you're see side

Jackie Bohlen

Okay.

Somebody to us memo should as have that unseasonal. the given

Jeff Deuel

too. true that's Yeah,

Jackie Bohlen

Jeff. Thanks,

Operator

Thank you.

we the Next line line open. Feaster your is Raymond to go will James. of with David And

David Feaster

Hey, afternoon. good

Jeff Deuel

Good afternoon, David.

David Feaster

going to your see hires stronger strong on a and we're and we loans of In terms guess forward? pipeline, new here accelerating a into of Just probably think ex-PPP I quarter, follow up. do that growth trough commentary seasonally demand, should at wanted increasing entering in you light

Jeff Deuel

it I been think part on managing us. which X had an see Round that so of our relatively we've of is portfolio people And has based relative - on the existing PPP, is you focused undertaking quiet our and and not originating that we may on could as for and there. that seeing nice are comments, was really But in said customers what more positive on the some I to join we've calling focus the pipeline, to and in are traditional we I based want prospecting, this. seeing Bryan started insignificant on guess because progress

anything wait on second by go that. little time at we digit for. I do bit more, Bryan, growth side, want to the know, We may can statement. ex-PPP, that's needs single a don't to half, high that we'll think have make I what loan probably see to planning and before for looking we're add. than we're better you

Bryan McDonald

utilization just been have in picking Yeah, you Jeff, out the dropped your comments, QX if the would would change I rate flat. up on

then million the we a was the is of the for Overall in or talk didn't we $XXX pre-pandemic, then $XXX And $XXX Prepays with third with a back really million is which were about bit QX, driver. heading the million of down some utilization had in up happens and rate right prepay direction. higher. go what production periods we that about pipeline piece. So if QX from piece,

point - the So we're but to demand would head some up going loan and point, to Jeff's seeing bottom pipeline at we utilization that and rate anticipate out and up.

QX or appears based are in digits single the certainly higher in seeing pipeline on So we now. what feasible QX QX and right

David Feaster

the looking quarter just as quarter loan the in the then And slides, was it encouraging. That's than looks ex-PPP it's like at increased and in yields Okay. actually well. higher third actually it

generally pressure? segments how just pricing allowed or And yield or steepening for trending, maybe better issue? is you're mix a even it there all has pricing is that, conversely, pricing better more a driving what's curve are at seeing where of momentum curious the Just

Jeff Deuel

Bryan, you take that to want one.

Bryan McDonald

Yeah.

seeing there's it tail-end the lag, out quarter, kind QX, a closing was just a predominantly. what So in of first David, of bit of you're

our the So pivoting related on loan now increases. indexes up. or competitive focus. the right the pricing the competitive that's saw away seeing and beginning at the more others a from best QX, doing year end We've we of PPP what of are maybe certainly demand really been to than market, pass to We're

indexes up, positive. a that's are real So

built wait are But I of in certainly certainly are going again, the think how very, we to refi, that gets much able get that it index and doing. are very month-to-month competitors week-to-week of all watching those quarter, some closely. and were up to, just what from the book than we moved to the see watching have convert terms just pressure pass increased do going or repricing rates competitors loan this into looking our to the liquidity. of the to on But in are at have index how they before Those just we're we're competitive market with has spreads just we all spreads. higher are would to other

Don Hinson

David, deck the X think I this The slide has about without yield here. for going a is comment basis up just PPP. Don, points, follow-up

point backs in positive basis also impact We table also have earnings a quarter-over-quarter. X accretion release had out the incremental the that also that a

up So was believe, in comments, one points basis just my that mentioned due about X in to went my, it basis non-accrual loan really as I recapture on I X and the then It think to some I are flat was pretty yield on those able interest quarter-over-quarter and that. bigger overall settled the is that. were we we on and points impacts

David Feaster

Okay. be of is the impact guess That's associated like then good touch the this. to ultimate sounds they and on these I know equation. can whether on and And to upcoming there we it wanted just some just maybe side the efficiency first the tech of growth that initiatives, these, any both that expenses color. I of then help should with expect And you going

else and be benefits do on these even think the of docket up? coming you how maybe about might Just the initiatives what

Jeff Deuel

increase growth that We more we before we lot to we would things does that several buying go time. need the outside to believe in had of say we on direction wanted developers we've direction in that little through we years, shelf. the of Yeah, team we're lot may you to flex on of in, at develop to off or faster and a get we can easily the the small more And seeing shrink coming the IT been put us, bit manual, off if on is want us. the than what it we manage us that from went either the going of can capacity past, is David, was form to create related I embedded with other not - the not accommodate exercise through the developing this why our - for in expense growth that's statement set had Well, well to for this someone of for it in of the capacity, think lot income where It pass brought but a I this we this that more think if and we're an us to the help the is expense guess, add than bodies. up last we build and yourself we shelf. now platform that that a of wanted are is expense decided to that we it to opportunity form to in we A have could capacity-wise the at to it place. platform what we

on why we're out FTE think one it. see see benefits that in the back us example, but of to you holding is flex I So the the numbers, to the would can you get ability of going that's can that - you FTE and that for see

the It to technology that's customer the of the XXX be referenced of we're the to for our platform. better experience - that the going going alone The future. Let they we able us, us to for the want a and it's in is our we which platform for – up with had that service customers, till on and way when front It now. one to our to online Heritage platform piece being customers interact customers. clients haven't our in serving put where

can bit you So impact and and I the and off do that comments into setup will think they pick if be someone and account the will left the online initiatives some is make going. branch right keep ability they get where to our able it expenses and system advantage had, us. and related want haven't us in That's up support go to go the the branch and being a our a in they hold we into to starts little stuck, benefit actual maybe Don, maybe about future us different out to to how customers. there an they

Don Hinson

doing. in per is adding the starting Yeah, significant Jeff. as we've continue got $XXX,XXX like to on to said, are additional some have year much you and to just probably I guess, coming but open QX will expenses Most nothing quarter this we to expenses do of to opposed be baked it, that later

David Feaster

Okay, that's Thank you. great color.

Operator

you. Thank

your Terrell is to Next line the of And Stephens. Andrew line open. we will go with

Andrew Terrell

afternoon. good Hey,

Jeff Deuel

afternoon. Good

Andrew Terrell

Can the this coverage Hey, a remind real us it looks underwriting loan value the portfolio was perspectives? debt estate I here debt wanted the risk to - service fairly stable just just or in to portfolio, like rating commercial office ask service of you on maybe for this quarter.

Jeff Deuel

you Tony, one. that to take want

Tony Chalfant

Andrew. good morning afternoon, to Yeah, guess sure. Good or you. I Hi,

I think split between with the, occupied and out one portfolio point owner it's I'd non-owner things probably occupied. XX-XX is about of the that

the and we suburban. condition much close the guarantee that other X% because zip specifically out take on. portfolio at is into less in visibility we've you what portfolio do impacted pretty have going that would look occupant into point of lower defined at than And portfolio profile we've that the And - segmented we and core risk more better financial I is little been Seattle, you look a codes occupant. more So you around core Portland a of less occupied when of that versus a the at call what's is in the if markets, little owner then have Tacoma. than actually the little the the bit a having by is And you typically which thing core have those a bit very look

portfolios, non-owner a portfolio look just And to owner portfolio. portfolios XX% on at of give it's just under of and and just a large occupied. have and coverage look if very at We those our loan office a the loans. look I service sample once weighted of sample and X.XX% our deep slightly occupied flavor also the over do value debt at least occupied, this debt on real a very estate X.XX% owner-occupied, of non-owner year a XX% on into dive on entire commercial When service a the you about we average average you a those at high coverage the to those is weighted

look year-to-year we samples. So, pretty that's when at these stable and

really that we our haven't we move just points held and pressure see up anything forward, yet. well, has on seen speaking, we do as generally So office portfolio some but

Andrew Terrell

color. Perfect. That's helpful really

appetite forward. forward it's and the Can points the considering, lingering XX% to you just You moving the some maybe speak of maybe mentioned just impacts work moving here total given COVID from about of lending loans? pressure and home

Tony Chalfant

out right and Yeah. very the we're going appetite relationship-oriented. again, the go really are it's with happen selective versus - an sort from And until seeing I we are at the office I category, we're going to would going think the mean, have marketplace. point that say I as be particularly this trends underwritten the always suburban that different that different properly for deals in we're what's of see core that forward it's in a to we markets. a all

activity loans any But finding consideration. into look also a self-limiting are these that some can sense. the is really is from what take that we out market office not to makes that we're have opportunities there if of we to have would we in what for, extent at there much as because So see to opportunities certain

the on occupied seeing we're more I think be - would opportunities multifamily So particularly and spaces. non-owner pipeline our the industrials the of more on non-owner on

Andrew Terrell

questions. my Okay, thank taking great, you for

Jeff Deuel

you. Thank

Operator

we from Thank KBW. with And Bohlen your you. have And Jackie open. is a follow-up line

Jackie Bohlen

Hi, thanks guys.

the end at the indirect what one, quick the was one balance quarter? of Just of auto

Jeff Deuel

do that? Don, have you

Don Hinson

I but No, up quickly. can look it

I XXX, but the thought I to look it we're can quickly. just, it my top I think I I'm it was really down think head though - at up,

Jeff Deuel

did environment. performing do, We beginning. you this quite has well I But remember asking of is fairly now throughout very how first it waivers we've and and had more negative we retrospect, While the than short-lived it's in that out which think last about I COVID it at very do and whole things you portfolio the stories Jackie, come the quarter is and might nice have bad expected and portfolio, few that days got. in XX of we performed out

Don Hinson

- it - off much it the as do we over expect two that $XXX But far run And pretty as of was million. to years. was next kind

an of our on impact much as be won't that hopefully, so, loan And overall growth.

Jackie Bohlen

that view does the exit? performance, its on to comments added decision on your Jeff, your And Okay. change

Jeff Deuel

organization loan was now, I we right organization and I to strategic focused decision of open that with fit be the but decision is decision. aspects that and with doesn't haven't the precious Well, frankly great it can't, we've the - And come of of obviously wide original can't out Jackie, growth with we've and say eyes to hone continue it about it. our a on decided made that's very but that was because our commercial our because not timing quite to stick we where strategy it, it just and on the much talked

Jackie Bohlen

Okay. Thank you.

Jeff Deuel

Thank you.

Operator

this time, at Please with comments. no ahead further any closing go And you. showing Thank questions. I'm

Jeff Deuel

Cynthia. you, appreciate Thank questions. the you, everybody. We Thank

some to the I investor next happy there when but we some me investor meetings, get to virtual forward as seconds meetings, should of weeks to didn't couple seeing couple a chat for you had say. any we have go in of in looking and You start of

interest you very see time, So we'll all your thank support, your you. for much soon. Thank your and you

Operator

X:XX Thank gentlemen, today for replay PM will X. available ending call be conference May you. and after And today's ladies

of International conference may You for XXX-XXX-XXXX, by conclude an us participation and replay access code once AT&T or AT&T the XXXXXXX. XXX-XXX-XXXX enter access you call and XXXXXXX. That access for of again service. teleconference Thank for enter dial today. dialing system participants may numbers does your your XXX-XXX-XXXX the the Those code Executive XXX-XXX-XXXX.

disconnect. now may You

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