Earnings call transcript Q1 2023

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Operator

Hello everyone. Thank you for attending today's Heritage Financial Corporation Q1 2023 Earnings Call. My name is Sierra, and I will be your moderator today. [Operator Instructions]

I would now like to pass the conference over to our host Jeff Deuel, CEO of Heritage Financial Corporation. proceed. Please

Jeffrey Deuel

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

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

updated an Relations posted credit We quarter corporate investor which Investor also have detail and the on first deposits, portion website presentation quality. liquidity our of on includes more our

We press will refer the release. Please call. presentation reference during the in to forward-looking statements this

industry to to turmoil were flows. the all March, to we the quickly calm movement in see in we very tied normal In solid We're pleased unfortunate report faced happy factors another of deposit with down deposit the around destabilizing majority us quarter. spite of

late get As you through 'XX. and QX know, competitive theme into that 'XX QX deposit third to 'XX continued pricing more of and quarter in started the

on lesser focus alternative and QX normal at exception most in was retention general deposits, including higher insurance-related in to of for with good success. relationships to but to a The movement majority tied continue We flows, purchases concerns, which, capital in portion with tied of a deposit pricing FDIC investments cases, resulted cost.

our aided teams million the trend commitments to newer by of positive production we're We pipeline. of $XXX seen with and the of reported progresses closings new have that loan in our loan the pleased expect deposits we growth solid annualized, from and new X.X% existing stabilize year as and members We team. deposit number organic the

portfolio expenses profile a conservative Notably, long-standing credit recession. loan us We carefully, good foundation has a the actively to to of continue for us. on continue on and impacts we improving our play risk to inflation. focused facing experience Staying provides into managing well focus credit our our potential and continues report out although continue also quality to manage to enabled trends

We'll now to take move results. cover to Don who few a minutes our will financial Hinson,

Donald Hinson

Thank Jeff. you,

I'll As was of performance. Jeff drivers some QX main the and mentioned, financial our reviewing of positive be in performance overall

I financial unless the prior comparisons noted, As of all the otherwise walk be our fourth through results, with of XXXX. period will quarter

interest the we interest million with quarter. use Starting deposits was in of an interest-bearing experienced mostly or decrease the resulted increase from due This increased for margin the income, main in cost during QX short-term net $X.X driver our point in net X.X% well as decrease expense. as borrowings QX. an of a our to an in for X This increase of interest basis

We QX. expect on experience NIM in downward to pressure to continue

loan million with we started As QX X.X% of or solid XXXX $XX mentioned earlier, annualized. in growth

on which XX addition, points a were Bryan loan In basis production on yields an minutes. have loan few the higher yields in was portfolio and X.XX% update McDonald in QX. QX, will than

increased cost points QX. for XX Our X.XX% basis deposits of to interest-bearing

rates. experience We deposit continue pressure market to to related

rates deposit working our maintain individually to customers our by increasing strategically product relationships. are we However, and with

during total closely to the of bank occurred subsequent experienced expect decline balances throughout experience monitored we The cost of core failures deposits. our our the X.X%. current result quarter. the a mid-March. As including first days deposit decline the increase Overall, an rate to in in continue quarter, a to of in the the QX balances We environment, we in deposit

failures. primarily in significant due outflows mentioned, capital the QX or outflows. were our large to deposit normal purchases runoff either see bank We did Jeff As not recent

deposit quarter the a pipeline also presentation. first later of quarter growth. minimal will no the in deposit to Brian discuss Historically, also is our

FVC additional end were $XXX deposits of total full accounts deposit customers of insurance, we these which FDIC for end XX% insurance million products, were the the sheet On at deposits coverage. totals Also deposit balance insured offer at Our seeking of QX. have for QX.

in the and deposits public costing cost which million rate higher In added floating order $XXX to in quarter, we core supplement funds QX, increased this in $XX contributed broker deposits million to deposits.

our we million addition, position by our in overnight made of FHLB income. to Bank did decision Federal In borrowings the net added balances when add Reserve was to overnight deposits and enhance significantly offset on QX. these noncore not earnings $XXX liquidity The borrowings impact interest and

set the We offered participate funding by to in program are the bank Reserve up also Federal term Bank.

However, facility. not we this yet have utilized

for specifics XX of liquidity investor and borrowings position. Page our the more to refer on can presentation You

All ratios our thresholds. regulatory capital well-capitalized of remain above well

TCE is QX. X.X% up X.X%, the at from of at Our ratio end

XX%, have quarter. addition, our our we quarter to of of previous a grow with the this loan-to-deposit continue to market saw liquidity loan improvement of plenty investments the portfolio. ratio in We from value In

on on AOCI. Our the loss a equity unrealized impact declined XX% in available and securities had change for positive by which through also sale

agencies. our available is investment and with of for the XX% were years our quality U.S. government by under credit sale securities of of duration government new purchases over portfolio portfolio years. investment held-to-maturity quarters five of The under all or and The the strong three last guaranteed two is

XX. investment through have Pages on our investment regarding We XX detail our presentation additional our provided on in portfolios

XXXX. and increase to a stock, Noninterest held This we onetime in of B to Class increase gain quarter QX. costs $X.X benefit the increased million expense which payable primarily paid taxes was $XX.X Visa to due million on $X.X an in income increased Noninterest higher each first since have during due sale year. million of

to we and noninterest the low be additional QX. to in X April to expense expect $X for Boise our range million new due office, production ahead, increases related expenses Looking offer

in on loans continue the of allowance loan And well as to the mostly in unfunded recognized credit to during finally, we increases million the show QX Even we provision portfolio, $X.X and to in though credit metrics, change of losses allowance. quality strong commitments moving balances for impacted which a a due calculation. mix as

Tony, the who I metrics. on these will now an update quality credit have to will pass call

Anthony Chalfant

Don. you, Thank

pleased the at I'm end that to the strong first credit XXXX. was quality the compared stable report we quarter of to reported that in results when

XX, March nonaccrual during $X.X X.XX% quarter of the from million X.XX% quarter XXXX. OREO. million and do This by not and of of total loans declined hold we or Nonaccrual of assets. any are by now As XX% $X.X total and represents the million totaled loans loans $XX.X down first

of We moved loans in million more three by amount full C&I that This quarter that first or in applied was principal. were offset in either aggregate relationships were $X.X maintenance to in the to nonaccrual the than $XXX,XXX. paid

and $X.X million or as XX from of stable at still which loans, delinquent over total those year-end is we Our define accruing X.XX% past loans. days due

the in Page in highlights totaled those of nonperforming $XXX our year-end quarter. the where assets. since million end XXXX. the of of the presentation XX of investor This to loans, approximately favorably the special loans positive is a criticized mention Criticized risk-rated XXXX, still just X% increase under substandard compares at trends level first million. very totaled modest $XX.X million This of or quarter $XXX.X

same million over Notably, XX-month risk-rated loans have period, $XX the substandard declined or XX%. by

and and see $XX special at in represent are trends. million under loans While still hotel improving show high, just the criticized rated of this the mention improvement. $XX.X both continuing Two total we of portion million, portfolio now are loans

end that at comparative I'll of totaled XXXX. purposes, just highlight hotel over loans For criticized the $XX million

closely office loans. of to our watch continue We portfolio

to material this see loans. level At approximately under quality million that any to the have office end, and loans deterioration quarter our close portfolio. or X% office in $XX portfolio is of criticized very We the the end This just owner XXXX. of reported of at credit totaled we of yet total nonowner-occupied

category the loans the is this bank. At $XXX in of million, largest CRE

key tenant we properties. have that owners from have of the as rollover the well risk, and of as include Some as typically the is a guarantees portfolio less portfolio These risk company the XX% lower profile there's characteristics the this company. occupying of space owner-occupied

our for size exposure loans little in loans Outstanding office XX average markets core $X.X an loan Tacoma $XX and downtown of over very million. have the million within Portland with Seattle, downtown totaled just in We footprint.

levels. investor long bank real showing On loan Page history portfolio The a XX concentrations. of robust a added has of of the our commercial estate management we page concentration presentation,

You'll and for and of well land see subset construction, loans. of CRE our XXX% below the that CRE land the capital levels for we concentration and maintain total XX% development regulatory threshold

XXXX first $XXX,XXX total recovery between the of $XX,XXX evenly recoveries through average by charge-offs the or charge-offs offset of and for recovery for to our compares was partially quarter, net relatively norms. about $XXX,XXX $X.X XXXX By compares of were for represents approximately of our first a quarter They we average a of net that split favorably comparison, to experienced of the net historical to charge-offs quarter. quarter XXXX. and the quarter net $XXX,XXX period small of is portfolios. quarter commercial $XXX,XXX loss three-year During a loans. This the our annual The the for in and million leading XXXX fourth of consumer $XXX,XXX X.XX%

While first diversified the positioned the our portfolio, encounter quarters. we represent well that quarter. more with underwriting With challenging challenges deterioration quality economic during economic may very environments in the loan remain we XXXX XXXX, we saw in a coming our recognize in may to credit disciplined and little we deal

on now I'll for over to call production turn QX. in an update the Bryan

Bryan McDonald

Thanks, Tony.

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

closed loan commitments, and million closed to roughly in $XXX our quarter, $XXX new million quarter teams equivalent quarter XXXX. in the of first the For the commercial $XXX million down last from

quarter to Please last $XXX quarters. the of up quarter originated loan quarter first the from XX refer first in detail $XXX for Page pipeline past the on additional new XXXX. million loans million at The end of investor the million, commercial first over quarter presentation up five ended $XXX at the and from

and of the commercial joining quarter to loan to the until is later sales ramp teams have first been and team the into the our during in up Boise with April. adding majority XXXX pipeline starting just team hired New not

additional have month. of eight the the team a scheduled currently with before start to two bankers of end We

on Our office fully permanent and are Boise XX. we staffed our into this space May is point, moving at

loan quarter, and was growth Don annualized $XX for X.X% Jeff As million a mentioned, the rate. or

during fundings both benefited and were quarter averages lower construction balances from the production loan loans. on levels down XXXX prepaid Although we increased versus on and production

plus see change market the quarter. next Please just a XX Considering during pipeline is loan anticipate couple end of customer the the loan in detail our up base Slides new growth for portfolio team of quarter for Boise similar ramping our of economic investor loans We XX and level in fact the its on full the production. deck conditions, quarters. trends current and and the conditions,

associated during million, totaled the $XXX over ended and $XXX the at with new million. quarter deposit quarter accounts pipeline Balances the deposit opened

at increased our the on Slide in deposit is XX% Deposit reflected rate other strong regions. as first hired particularly and existing decline deposit teams the Portland of we XXXX New MSA officers balances deposit XX results presentation. significant a which during a and producing quarter, balance been have investor annualized the saw in given during Oregon

Moving to interest rates.

interest is Our last rate commercial quarter for basis quarter. points average new for higher XX X.XX% X.XX%, was average which than loans the first

was from X.XX% In points addition, all for up last the quarter. average quarter basis new X.XX%, first rate XX loans

Although new loans. rate the and is loan into marketplace continues volatile, to we're be interest been translating indexes have improve, which fixed on higher seeing quarter competitive spreads the rates

closed rates the mortgage quarter million relatively million million new 'XX. million $XX we the XXXX. second of versus first 'XX anticipate first low of at and in the in year-end compared fourth higher at The continue quarter quarter in department levels mortgage in quarter remaining the loans million levels, at will end mortgage XXXX the The and at $X closed $XX ended XXXX. we million saw of With of at volumes half of of to $XX the of XXXX the the quarter $XX pipeline first $XX

I'll the now back turn Jeff. call to

Jeffrey Deuel

you, Thank Bryan.

with mentioned earlier, our the we're I quarter. in first As pleased performance

franchise the liquidity deposit the still long-established we of ample we're strength an for general continue them. is of While liquidity area broader our to crisis topic will have need and be confident discussion, around sources should us, dialogue recent a granular we

support positions as relatively to our high-quality customers our new to us continue loan-to-deposit well as -- Our ratio well relationships. existing pursuing low

historically our a of and possibility our conservative position footprint face will historically to the strong credit vibrant. economically continue and as that been we We operate in approach from benefit to capital a we recession,

management, and tech We progress will position up XXXX, with our which we as well with wrapping with in grow. will the X version in-house us to focus on continue expense good do more continue to people making we're same build to

the navigate potential to challenging believe, Overall, we dislocation any to we positioned our and are take of conditions that in markets may economic advantage occur.

of conclusion the era. is our That comments, prepared

have to So we're up callers ready to questions call may that to the open for the -- us. any

Operator

with Rulis question Instructions] Davidson. first comes Jeff [Operator Our D.A. Please from proceed.

Jeff Rulis

Thanks. Good morning.

sense on there Just side. just ongoing that it sort on in sense, challenges deposit so the But continue rate to more stabilization you're in March but and just all through you didn't just -- pressure the balances relative by a Jeff, for if on those just expect agree? kind so in to of of then pressure. of seen pressure rate think trends And like April? slowed sound comment I addition and alluded mentioned the maybe were question guess, additional to to the Don seasonal you news, to trying you've as you I a think impacted terms mean, Do requests a you're balances you But do get far have that that? like well Don, rate on you at expected. getting feel any quarter-to-date. of what

Jeffrey Deuel

to join Jeff. start, can want in, Don, I you and maybe Yes.

benign. maybe think what experienced. that's that, not exactly making I'm completely I sure sound it we we're

we good well. more trusted circumstances. and the like think doing going how time. frankly, was of that our everybody base, And was going tied was about reminded very much we our them given lot what are environment us. their think what with did mid-March, It the closely lot us that bankers were think that dialogue our that on around customer conversations me bankers banks occurred I period would and I the that And it of a the pretty circumstances think than thought a weren't understand customers, us I I anxious quite advisers, and our did to be during of else, helping I on and that around meaningful see between

about quarter, focused did in that until I well fine. general to I we think think it And is I fourth terms think rates deposits. happen of two that and something talk But what really and rates. went on think was in as I was they -- step the up maybe was point. from conversations relate everybody's the Heritage benefited it don't in let's attention

time but for I a there's on, and maybe deposit started year because of other we're there's in flows tend faster watched we're for think many Don see of anticipated one. as to stabilization So to said, in tax rates we trend that's That's lot than did tied the bit we end think We March this time -- of daily, we believe period big towards of month a payments. tax saw circumstances. to anyways we things or calm days, went now to seeing the had normally is I and activity down hourly we move a shorter as -- activity down see other the reasons that little what a given too, of is stabilization March, of starting if

we'll we stabilize which from we benefit And maybe our April, I be But end deposits that's the as to think things stabilize we in it's outsized. none think around think and end of grow we the in think of the further the will focuses. and help start the of into help of the as that, us script, said get that on development, will the one new of footprint relationship also I which year, activity would going through some

we get end a fruit going focused. I towards team all now on have to that deposit And think as our is lot year. We of that of bear the folks energy are the

rates comment to maybe Don, you on want going forward.

Donald Hinson

Sure.

the update. the basis was and cost I the points. interest-bearing far XX rates deposits just an As give as you of sales, for quarter

rate basis XX basis spot and XX March, points, For is it was the points.

million rates, on is we which of kind the points funds XX basically Fed brought deposits public XX. minus is higher at $XXX basis basis of paying X in Now the points

floating but it's cheaper So it's borrowings, still cost kind of little a than a higher rate, deposits.

what to that to a experienced. than be therefore, XX you flavor of a going rate cost quarter, for kind kind we just higher give of just XX right, of So kind points, basis and with is of the the next spot of

exceptions, can speak Bryan that actually As going rate real I'm -- to Steve quickly. far Donald as to

on I I little finger than the think a on more do. he's bit a that pulse got

Bryan McDonald

Don. sure, Yes,

would leading Jeff with of rate volume We those are -- a all the request. described, did a I end to higher a conversations has -- couple as up of level weeks, declined say customers the

is be including outside I dollars our wealth area. I other with to although all I and are competitors, our alternative management the this dependent investments largely those similar would on feeling think, think where that banks going of reported happens to a by are these companies, we've deposits nonoperating lot seen the going pressure own what say to what excess we're rate

rates the competing where available primary market customers can short-term rates. the that funds that's competition there are get with higher out for So money

I just not going say quarter. anticipate through to somewhat, moderate it some a that some higher it's little activity, still have So least level pressure. but to seeing of second early we're bit We're at the

Don closely, want As following keep we pricing do. to balance both this reasonably to sense really Jeff as as to and competitive and on our that much mentioned, maintain teams out makes And are closely. that falling really we're of sheet

Jeff Rulis

Very There's deposits. I just back would that expectation broker relative to helpful. thread some if you've built circle on down there second up the And being Don, margin then -- QX. a to quarter your

FHLB. added You

sort the into of kind if now. carried forward guess, of you the expectations You're I us your rate perhaps doable? back the the requests half, on you out, on in how further any see addressing balance that's customer the things and you half guess, of from digest I in margin margin but back of year, some your could as QX, sensitivity update navigate 'XX, QX that

Donald Hinson

trends, in next what really really our be on depending to you give was at get did couple margin X.XX going come it's I'm it there down. and surprised, somewhere in to to happens, based fall And the think didn't down -- look environment. slow though just would QX. But X.XX, off just that. to the on right, current much quarter. X.XXs get I decline I guess, some down therefore, We rate going margin with color overall don't the somewhere the I in Well, probably And that. -- probably again, it to could into think expecting a is as of rates, the I the I

So -- throughout but more the could fall bit it a year.

Jeff Rulis

right single-digit you there, I a you're to so pointing just if or Don, get you compression, lower. X.XX not had but Okay. margin

see higher compression second quarter. to the relative could we in margin sequentially So quarter first the

Donald Hinson

I'm expecting that, yes.

Jeff Rulis

Okay.

back. Thank I'll step Okay. you. I appreciate.

Jeffrey Deuel

Jeff. Thanks

Operator

for your you Thank question.

Our next Stephens. question proceed. comes from Please with Terrell Andrew

Andrew Terrell

Hi, good morning.

Jeffrey Deuel

Good morning, Andrew.

Andrew Terrell

wanted start the on to pipeline. heard I side. the around your deposit deposit I commentary

to around does I million think level here the the to compared how that stands I'd pipeline $XXX the or $XXX a in of that curious million much And be Just sense noninterest-bearing. of pipeline trying you then the - said so. get coming the it is of how year? into deposit aggregate

Jeffrey Deuel

Bryan, Can you to that details. you be one? the closer may take

Bryan McDonald

meaning Yes, is sure. are and relationships. we're although of It's up then that And balances where the success XX% accounts, we're XX% what operating there excess range. predominantly most significantly some finding over terms in in somewhat mix, operating of is but these kind in after to the that's QX, going there,

mix by of new reviewed I balances with on relationships, account don't I there the with account in some is a associated their portfolio, these the excess have operating and -- and familiarity accounts the that base. with although but the have some So names breakout terms

Jeffrey Deuel

on had several of in we outs now, year a both that lift through only and detail in March that, month. -- March got more in get loan lot But monthly spite one deposit that people because for beginning you last report we production I deposit pretty a the the not remind go report, of we of good see than all the which to that for have our we of the gatherers add that Bryan at we have what's production for and of had that and goals, last lot years could been I did. Andrew, and can going there's activity for a we just

three actually, the folks the come side. on to the deposit branch different going and gatherers two from directions. The folks it's -- So well, loan

Andrew Terrell

the like takes the Thanks lot Very maybe size just some just Okay. the there. color balance I of as end loan FHLBs, looks need growth on into level it incrementally the brokered of, kind of just that for good. you or Does some FHLBs into to it as optimism the I in built mentioned. March, at into sheet growth, the second And if quarter? some cash go forward. puts when But funding here of of the like kind prefunding, we together quarter. feel well of of some I will brokered the you know as I build like front deposit then It on was Does will, going you to that going deposits guess some moving piece second trying guess, quarter bay? of keep on and understand and commentary with sounds

Jeffrey Deuel

But coming to Well, But to a there's that the FHLB offset at was make look invested for prepared were our still amount which sheet, circumstances do at if that add serves of may was considerable given defensive. borrowings, want of we were balance some mostly cash. us. to to you and we you anything the this. sure bulk really, up Don, what did

six, months, to you've deposits done is which more design then were bolster run part other off over got what the did. And brokered borrowings we three, just of position. of the the And our nine

stable me and So have our borrowings of wrong, I'm I that in things the been I if settled think quarter correct that because we've FHLB to think we're since -- end be down Don, feeling that a little deposits if think, the and think minds. have I like we the started more I but -- lowering the

add that? want to to You

Donald Hinson

our got whole little to quarter last of to end did in of be because there a position it, cash half balances have it quarter In of or environment. increase the cash excess March. Sure. without loans million at of the if more We we deposit could just you the was than likely take almost look on But -- we kind more just can overnight you what in kind really, one we've bit Well, of we any going borrowings. of $XXX that at as -- to fund way, before. had much if look having

down I because down. will be fine that as with think So position saying working settle cash

Andrew Terrell

Yes.

for rates I a you just last little time pulling help that out of with question bond peaked could March for any guess back to bit purposes fund within up then where either incremental And areas also me, trade versus to early look kind loan or are they growth? Okay. trim frame, the book there in for our positioning liquidity

Donald Hinson

Yes.

we investment oversized we to last an looking saw sense were now. wasn't dollars. We've didn't to have the that par. took a it it of March, amount huge a did when sense. do buy want people sell, are looking market was didn't to our right certainly but compared of They We lot It's bit there in loss, the a make little It prices, far as quarter, makes portfolio We a not to little total environment. But we more assets. and of bit. wonky just of in especially got kind as that sell willing to

there's stabilize or prices So off. we than a we if some be might doing chance that better that. of There's the held looking a

Andrew Terrell

Okay.

Jeffrey Deuel

on to shares, make have didn't Don repositioning some Quite frankly, it losses nice with just but said. would it Visa been sense, that offset Andrew, as

Andrew Terrell

Yes. No, total sense. makes

for the you questions. taking Thank I'll step back. Okay.

Jeffrey Deuel

Thank you.

Operator

your for you question. Thank

Please question Adam? from with Piper proceed. Adam next is Our Butler Sandler.

Adam Butler

Matthew muted. is everybody. for This morning, Adam was Clark. I Good Sorry,

that. about Sorry

that I in to one was kind $XXX of on XX, Oregon add spread commentary about Portland pipeline, is growth the appreciate out the both question it deposit deposit Or seen is and you've With that Just just separating another the your that them? and of the the between commentary. of million kind area in MSAs? I Slide to curious, all Seattle. of

Jeffrey Deuel

you do want take that? Bryan, to

Bryan McDonald

part deposit The so the on reflected that's versus just the that's reflective XX. for bank-wide of slide in that's Slide versus bottom flow pipeline will bank pipeline just that what -- region the pipeline, of Yes. the

Adam Butler

will just future was comments in I outs pipeline trying the Understood. even quarters? idea Any get recent an maybe deposit And Okay. be see to team what that? the larger could of you an doing? possibly on lift

Bryan McDonald

closely. deposit a it The different I base, officers relationship customer of of existing calling thing number Yes. out calling. they're and obviously fully team are first as the say, sales is well are bankers watching really sources having kind Jeff deposits out the all We're mentioned, from having would coming as actively without a our a

And so a just is market. lot disruption the it to going of we see of what depend on in sort

And disruption like they're our the and a convert to we're during viewing oftentimes, them. market another met the this needs at that's not all opportunity of same loan institution, way and for bankers maybe years it's period where call able get our their to opportunities

deposit We environment. at So side. it type of this or loan those is we're the again, look seeking relationship whether clients, the be on

that hopeful in we've able there direct So good market put we because the of we'll be remain up but to and some added. that that answer, numbers wasn't that optimistic down a staff

Adam Butler

if the values was portfolio. the would over commentary I on portfolio, appreciated. rates you're Okay. you question, of further some that downtown some office to And the the Great. just to call detail the loan Thanks. wondering could the office just provide one credit. area? switching appreciate seeing appreciate Anything then I color. and I be occupancy on in of the

Anthony Chalfant

we just deep and our an our up of -- weighted commercial on Sure, office on value at a, XX% real is was Yes, I wrapped pretty we loan And portfolio, for had looked deals into example. and think, this loan over particular dive of and larger portfolio to average coverage ahead value a more is our the the loans, the our the an about And at million. focused probably X.Xx. estate that portfolio, that Yes, Tony. on little that XX%, that last would quarter take to to service loan-to-value about this be about And $X.X average -- average in one. was debt portfolio of bit Adam, we a fourth do the portfolio year, end I'll basis. go color annual

markets And and So I makes mentioned markets. And clearly, mix. exposure felt in Seattle I And at I distress very again, that we feel we experiencing pretty look the our if some the properties, which, markets. have core my in think the in top core we're you about do occupied XX on X about I already, those good as downtown particularly significant pretty little mean I think Portland. numbers. those that comments, are happy, have looking was those market, good of again, them very core are at us

I'll $XXX of guess, as a about market perform our million really look that office portfolio which in across range, continues footprint. that risk One at our about medical office, much lower to other, of is $XX out well, And we point profile. million I pretty the

stop you specific might I'll looking there be you if more for. and see had anything So

Adam Butler

you, very was pass Thank great. it. And I that That appreciate back. guys, much.

Jeffrey Deuel

Thank you, Adam.

Operator

Thank you for your question.

David Raymond Our from Please proceed. with comes Feaster James. next question

David Feaster

everybody. good Hi, morning,

Jeffrey Deuel

Good morning, David.

David Feaster

I wanted to growth side. on the touch loan

remarks, I'm at And demand yields footprint? good loan gain prepared sounds just relatively opportunities a I'm are your point? curious Where really pace share today. sustain the growth? growth in you your seeing curious, it like are it how just here expecting for is stable. across Just good growth allowing you're on trending to to new and hires of commentary your new spreads at Are widening, this you to where remain

Jeffrey Deuel

Bryan, that? do you want take to

Bryan McDonald

start rate I'll maybe those comment. that sensitive. projects a broad It is were Well, maybe Sure. with just

construction year to increases year. cost those the of over that some related really over seen we've off the fall So last last

that a moving of and underlying the those working ahead continued. feel projects. projects ahead for have last been few continuing So sort and customers strong business that are on confident other years, still we're has of a number seeing that's the the with real they're those backlog, and they that ones got We've

without new And I portfolio, will contributing no say ones obviously our a calling specific bankers and new of teams that are pipeline. overall geography. to the out, that lot they're

We did we a this have more year time. salespeople now ago than at

So that's also a factor.

March see we for if quarter. business let's average And you new give the versus for I that The I Yes, loan sense new rate of of $X.XX you quoted for full all I the terms will give $X.XX can the for the then that for In number if quarter, for have was full quarter. here. numbers versus, the March March. commercial on you a for $X.XX -- $X.XX yields, -- numbers mentioned, loans full

spreads seen we have So widen.

obviously, look prime-based is, FHLB, $X.XX rate fixed Our the at at if I when level, looked reasonable at but because the a you week. X-year challenge, David, loans it's index this not prime earlier

even in the so it low what couple XXX year seeing And a we with puts a spread basis Xs, higher spread, than point is ago. that that were of

everybody's because costs was low. that so Again, deposit were

a seen what think isn't from reasonable a spreads But up So over them that have last seen -- reasonable really spreads we be back it years. haven't the seeing to the level. -- come few we more would we we're low come

continuing keep spreads those up. hoping we're So

at looking up customer pick pricing fit particularly interested if this profile, them And volatility want relationship a to they if this been this or not our great in customer in and if base as core years. stay higher relationships bankers as better markets opportunities support the or relationship for those our support see clients that new been about. come bank again, opportunities through maybe is to not those we've we've and We're, doing long-term core opportunity much and their existing the and on able and market lending. current calling We

Jeffrey Deuel

in being I there's And this hit is several not little saw deal over it's is we've of I deals the approval, and see this question, see level started might months. Jeff. relationship It on loan size. the your this enough, a deals together you that the only a be David, what based several And necessarily but of for steady of seen report size, certain response interestingly a anecdotal terms going flow October saying first is in actually deal when happening. that the when often it on last requested out to them

So it are the point, vantage little there, bit from just a my moving feels slower. like they're deals

David Feaster

a -- running ground to? lot you And you add the have around disruption seeing you for going? encouraging. these or you. times touching as do guys would appetite markets That's of hit just to have hires your are appetite to geographies more? be potentially the or an How starting looking And segments maybe are for more guys you what conversations Are opportunities? then maybe I'm Okay. there's curious about obviously on several talked done, just recruiting we've and more that

Jeffrey Deuel

the I always that teams. of by versus There's But we've on side. a M&A that you deck. a obviously, actually know would slide probably while. that bias take start for sidelines had advantage positioned saying there M&A in we've our shows to that opportunities we're But on is a always the and teams, for that illustrated in

much may a this, exists while now. we're take surprisingly came add making that has have but the action us I to teams, team it team a we're their they for May. on Eugene, only them that trying what in newness three-state year their if would David headway. example, compelling them. getting to in already we're to all market. enhance in particularly probably focus I that interested we under just with us really to they as that the in because want to give and be a support as augment They're can guess now because Bryan area been team always newness down already south have and Still, their now would for with legs across right to due and or Boise I that almost would And we leave in is think good

make then to. want to we So don't spread we get out, sure support can't them we

been people. that one-offs some there's little out compelling, like interested the to flesh in So going in of pretty we due more of the like spots retirements probably repositioning on and that have would and have some so a would said, couple maybe to it footprint I a of bit to be

compelling. to So Bryan, pretty whole would looking, we're to to that? add want always anything a be you but team have to do

Bryan McDonald

it's just Totally on filled over agree. few we taken well. I lot And No, a here team months. we've going and Boise in the last entire the

And have Jeff we some as retirements. got onesie, two-sies, some we've said, so

if hard we we've and situation, support way we'd then a we have them we're continue certainly groups we'd take really we're to always compelling really to meet any a a and these like with can. to and was onboarding for a done Jeff, favorable them lot listen to in willing help experience it always and and recruiting So out look. But agree I well

So...

Jeffrey Deuel

be David, That's too. expense now to keep need really also we to it that base, an on we that cognizant really that have. compelling our eye teams be to need has we've because of we why added the

David Feaster

just to And Understood. maybe Yes. gears switching capital.

the well you side touched really already cash on a bit. But your guys You positioned. M&A manage just

balance the banks other very same of lot You issues that well-capitalized have a have AOCI sheet. don't

thoughts kind in cheaper this your to on uncertainty, the capital I look out and than bought that we curious several I at where for mean, your just willingness back the at stock I'm point your we the it's buybacks, back, preservation mean, the Looking mode. trading capital? Just return you more where capital in a or years. appetite are curious given past of stocks,

Jeffrey Deuel

to you take do Don, want that?

Donald Hinson

Yes, Yes, before buybacks I'll even this. than take levels we done and higher that. at right have

-- a whether ratios that is a quarter AOCI, little strong. think because into the still recession. low are a uncertain heading a I our regulatory capital ratio we every be little of could it's little improving TCE although

involved some. So we may get

any but we at considering in watching give also just I have that are point, are carefully. really that on you depending the We we don't area wait to but economic this guidance may it. environment,

David Feaster

place? you I in do remember... much you Do And left an have have at don't how authorization

Donald Hinson

and current a easily plans, We have X.X we it's do at left about XXX,XXX time. million when shares left, slightly shares repurchase plan. over And our in shares do usually -- new -- XXX,XXX

David Feaster

everybody. Terrific. Got Thanks it.

Jeffrey Deuel

Thank you.

Operator

Thank your no questions There question. this at you waiting for time. are

pass the team to conference back I'll So remarks. over for further management any

Jeffrey Deuel

look no coming many the the thank for you, Thank Sierra. forward you, in all our If seeing performance, your and wrap you and there's ongoing to of you weeks. interest and in goodbye. time up your Thank We questions, call. more we'll support your and we

Operator

the today's concludes X-XXX-XXX-XXXX enter Financial call X-XXX-XXX-XXXX XXXXXX, call. code The XXXX Thursday, dial earnings access QX will dial enter Heritage the for and access To again be code available That Corporation's April until XX. please replay and XXXXXX. replay, access

participation. for your all you Thank

You may now your disconnect lines.

Heritage Financial (HFWA) 20 Apr 232023 Q1 Earnings call transcript