Earnings call transcript Q2 2023

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Operator

Hello, and welcome to the Heritage Financial Corporation Q2 2023 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]

I'd now like to hand over to Jeff Deuel, CEO. The floor is yours. ahead. go Please

Jeffrey Deuel

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

went opportunity and hopefully, the had the to Our it premarket, call. second you morning quarter out this earnings to review release prior have

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

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

with consensus. EPS in We're pleased very line quarter to report solid with another

alternative in to see we lesser with including of the a we tied We relationships on pressure and as to for QX reported of quarter the investments. subsided. a pricing in our new normal portion tied customers focus X% with for movement and deposit on was the loan We primary QX, have solid continue existing pursuing organic to primarily substantially on C&I. flows, year. balance that expect purchases growth to supporting continue focus capital Deposit insurance-related concerns FDIC

production are and year. the trend the new added of existing the positive from pleased past our teams with loan newer We new commitments closings and over teams

loan risk carefully, and to returns to although to for good as provides us. report quality long-standing historical mostly Staying strong quality credit expenses conservative profile portfolio enabled also has focus manage us inflation, metrics well our our continue more on the credit actively play to a foundation continue Notably, of levels. credit to managing continues focused and on out to costs. We we continue experience compensation impacts on our

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

Donald Hinson

of period the be quarter our as reviewing our with main Unless of first some be walk performance will through results. I of drivers financial prior QX I comparisons the XXXX. all Jeff. you, will of Thank the for noted, otherwise

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

million loan we As a solid or mentioned earlier, of QX. growth had $XXX X% in

addition, yields points on than XX quarter, In basis X.XX% was higher were the portfolio which the for loan

QX and XX a assets. basis and earning in update contributed McDonald on an an yields on increase have in will loan Bryan point production minutes. few to yield

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

continue We rates. deposit to to experience related market pressure

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

pace experience by than the The of of X.XX% of continued spot but of result increase our core slower although at cost continue we a deposits, of environment, in an to to the As rate in a expect current X% cost month is XX. interest-bearing slowing as the cost June being a rate June increase illustrated for in with of this the deposits QX.

experiences due the months Bryan balances in presentation. the which quarter. that deposit of decline typically The decreases we the the deposit in to is Overall, tax Deposit payments pipeline two were relatively of for month decline primarily discuss last experienced our deposit quarter. in will a a X.X% flat later April, occurred balances balances during in

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

as Term at Reserve's due the the as supplement X.XX% option rate Federal to to advances cost or of we was and cost from fixed the the in compared nature to well Funding any lower the million notes The time. for paid borrowings FHLB the an BTFP average funding, order rate $XXX FHLB the QX for borrowed In our prepay BTFP, to Program advances We BTFP the existing and advances. Bank X.XX% quarter. blended on of utilized off

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

from in I to X.XX% previously X.XX% a quarter. prior NIM As mentioned, we sizable decrease the for in experienced QX

entire margin of interest-bearing deposits cost the be pace second decrease and can to for which not the June, continued is QX, NIM as duration of further NIM only quarter. than increases a by deposit expect lower maintaining We will our be although of The in points basis month X of This decrease balances. illustrated on dependent for highly in our as significantly. in X.XX% well as

in of cost experience our due adjustable level off, origination as expect to deposits deposit rate As higher stabilization to on of rates as repricing addition loans loans. well we margin the to balances new

on capital. to Moving

ratios our and above from well-capitalized thresholds capital of unchanged X.X%, remain our prior the was at quarter. comfortably All TCE regulatory ratio

in occurred $XX.X mostly stock, QX. due of Class to B expected in XX%, due our incentive-based quarter, of million In lower decreased Visa million from onetime grow Noninterest primarily $X.X loan This decrease gain a $XXX,XXX the compensation a with resulting this decreased continue was from portfolio. to addition, have a accrual income QX. for to in to loan deposit on sale plenty we to expense liquidity the which year. earnings Noninterest prior the ratio of

the expect in for expense to Looking $XX QX. be ahead, low million we noninterest range

rate QX for to now XX.X% in in at QX XX.X% XX.X%. XXXX, order year-to-date adjust rate effective is tax in to to the decreased which the effective from The estimated rate current tax

of $X.X to mostly in credit million losses balances. though credit continue quality during we due even increases And loan metrics, show the provision moving on a quarter finally, recognized the for to we allowance, to strong

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

Anthony Chalfant

Thank of report the months strong the remained you, first that to six pleased Don. credit year. and I'm through quality stable

nonaccrual XX, of As of total and of This X.XX% million, represents hold not we do assets. and any OREO. total loans $X.X loans X.XX% June totaled

Nonaccrual $X.X loans assets. loans over status presentation nonaccrual in the payments loans reduction million or during the declined positive are months. highlights down to any nonperforming and of Page of our that now XX the the last XX% The did quarter. modestly to on move level investor were by trends XX principal. the came from quarter We not applied during

risk-rated represented total loans as quarter-end. first the Criticized days of $X.X compares or mention decrease loans totaled increased end special loans, XX we end the million just total or and define over have $XXX still This million at favorably the over of the $X the at of past million quarter. of of $X.X the loans, year-end which at Delinquent those from those end quarter. substandard, accruing first a $X.X modest is by This of loans quarter. Criticized million XXXX. since due to million and X.XX% X.XX%

XX%. they've million over However, same declined over the or have loans XX by the substandard period, past nearly XX-month $XX.X by Notably, $XX.X million XX%. declined risk-rated months, or

portfolio. six of to continues first loans X% perform Overall, CRE just criticized CRE the Total entire entire XXXX. stable portfolio well of represent has months our loan through been and our

very the in have is occupied totaled and to yet continue at represents quality. office loans, criticized office see watch loans. of total non-owner our deterioration At we what we our office X% first $XX portfolio million. This just While of to closely credit of material This consistent end we over approximately any reported portfolio quarter-end, loans of owner quarter. the with

any tenant next worse over current In evaluating a loans that of risk of occupied this XX pleased occupancy outstanding we was that net no or million represent operating of review XX% downgraded quarter, our the income, the balance did months. potential mention that detailed were around levels, of XX a or to $X.X event result second renewal this The review were office and special included occurring This report as larger. portfolio. rollover review. the to or focus non-owner on repricing I'm loans risks loans

we some deterioration date stable. quality expect the performance of this to future While credit portfolio, to see remains in

detailed and more office new Page quarter presentation our XX loan a this portfolio. is of the investor about information provide

second charge-offs of to the the $XXX,XXX. partially year, quarter. the Through They six offset leading by the charge-offs were total $XXX,XXX. we quarter, $XX,XXX recoveries were of first $XX,XXX of for experienced months During just total net charge-offs net of

trending higher what historical very While than losses in low loan compared XXXX, remained when norms. we to experienced

charge-offs calls, or million $X.X quarter. previous through earnings annual period in $XXX,XXX was XXXX As our average for the XXXX a net I've three-year about approximately stated

and potential has loan well to led cycles through We in maintain our portfolio strong type business bank well is coming geography. both by that over remain granular in pleased management. and our and underwriting stable. times, quarters. concentration and for loan disciplined the a turbulent to remain we're This a these that any diversified economic detailed metrics approach downturn The all conditions In remains credit positioned

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

Bryan McDonald

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

past new over $XXX last our commercial the and the from new refer additional quarter Page XXXX. five of million in in down second loan closed originated the commitments, quarters. For presentation from $XXX down investor Please on in quarter, quarter closed second to for quarter million detail teams loans the $XXX XX million

construction at $XXX down from quarter. on quarter, last XXXX. million commercial which the year. of for to million, due second The further and the the on Slides quarter of deck $XXX for quarter levels pipeline change growth loans quarter $XXX historical the down in the XX at above prepay is closed from loan second and volumes last million increased detail Please loans during investor and was the $XXX end ended the million balances see lower Loan in XX

at ramping end moderately level production. associated conditions, and team of with our new Boise and our the deposit growth Considering the next couple of and loan accounts million totaled trends during new $XX quarter current customer loan million. anticipate our ended a is lower but for pipeline pipeline quarter $XXX strong just the quarter The market in quarters. deposit opened We customer balances up base, fact portfolio the

rates. to interest Moving

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

X.XX% coming to loans the year last widened be basis is for at The committed levels. average C&I The in from the versus XX XXXX competitive, the implemented second through higher quarter. increase for pricing was being loans due include to lower closed market continues up new under addition, percentage into a spreads relationships. points quarter working that pipeline of X.XX%, particularly all In rate

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

to I'll the turn now back Jeff. call

Jeffrey Deuel

Thank you, Bryan.

earlier, be for an area our granular confident in I with have sources. well-established As quarter. we will we're performance deposit of second strength We're and our to mentioned franchise us, ample pleased liquidity the continue

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

vibrant. from our economically position, we and in strong operate to to approach in capital continue conservative our benefit credit a that will footprint We is historically

improving continue take believe challenges to positioned will within potential we navigate the advantage that focus dislocation may to to the occur. any management ahead and in of markets We our are expense organization. on we efficiencies Overall,

comments. of conclusion our prepared the is That

call any So Elliot, ready to have the for callers may us. we are open questions up to

Operator

Feaster [Operator James. comes from Instructions] question First today David from Raymond

David Feaster

the deposit and just It payments, forward? which fair gives front. the quarter. remix But some that trends curious starting just intra-quarter. deposit that your what you of I'd the hoping in you I more saw that was to guess later on could Is around flows there the normal like And a have deposit related was you core you confidence the think going in are tax majority guess continued strategy I characterization? stabilizing Maybe the early things of that you flows. saw maybe dissect and quarter, stabilized the things I are what and growth in sounds just mentioned

Bryan McDonald

Do you want...

Jeffrey Deuel

think what the was no, much going in, join That's to think -- I say, we -- towards that I of started too, was settle I I steady. it Bryan. saw you correctly. quarter, just and David more things characterized just down the to you became end pretty

deposit on. a we're have we pipeline -- are working We that

down boils rates starts That might where in up comments ears to really the the on want we're pipeline the a everybody's by in the of what kind and make to think and there's to I because the just headed deposit again expecting general perks see. Fed. So it deposits. you with change rates we're conversation minute about some Bryan, maybe

Bryan McDonald

Yes.

We as to our like we're outflows second the new. trying existing force excess from avoid those outflows those. customers funds get to trying retain our are quarter. with calling, quarter and sales to Again, best deposits customers, But out out the actively first actively meeting during existing just were well as then from the the more doing

So focus. to a that be continues

David Feaster

just that to curious, -- maybe where seeing the from competitive competitive tame could is retain are seeing primarily? you up? Well, Okay. thing as if existing mean, the are grow everybody relatively that landscape, you or on And I pick their and obviously, landscape trying remain has grow touch competition and you I'm too? do well. same so,

Bryan McDonald

from Yes. decade, banks the that different David It's Fed large it's is CDs increase, of been and money been price market is which but largest over of the we've with specials accounts. banks have on the certainly -- been rate which than the leading seen last some the the beginning what

buy Of course, treasuries, facilitating we've also easily customers can that. been and

new that's for any market. excess the but think I the in So that pressure Again, funds, isn't availability higher there's rates. this quarter,

to and we're the So sit. operating it in really granularity the and with of down where comes we mix pleased portfolio, relationships

what but across the able market. we competition of But that right And have with left go? just banks percentage maintain are excess price in potentially operating watch in We competition, with to the are that we'll to large are -- a we how have leader those to much there. and of lots the been the are never got funds could able board, Heritage accounts

Jeffrey Deuel

David, to that deposits. their add add dislocation for the associated deposit you going new customers might are midst now, procuring the in But we that I and a is that everyone's -- right little as would of I us. say, battlefield was around bit just be background a it, of with competing also deposits

there's outflows been successes some seeing. that the you're So beyond

David Feaster

-- on maybe up that. And helpful. bit. maybe gave you pipeline down of That's numbers, Okay. the you kind following were a on little Could obviously, touch

market be the point, pricing versus just in talk curious guys your pipeline. -- point? at any seeing And your First more demand are to appetite then off, just how opportunities in with this you you curious seeing for much seeing for opportunities hires whether growth is may disruption the But you have you're if of I'm that just been and active that you're could driven new expansion. then the additional dynamics slowing? pretty about

Bryan McDonald

of investor pipeline decline, requests, loan do seen the on real we can estate which surge it's -- in certain really only a percentage So we've anyway. a those

pipeline. for and and than That's the change, of the those the quarters. into opportunities real to it's existing just investor C&I some So request as non-owner primary owner-occupied we're we've it the out to add bringing continuing pipeline our in opportunities mix occupied investors, less prior what just new was estate less closed reason

in pricing through kind quotes, the spreads got market into of as demand, we we on the commitments alluded to that as borrowing in And working still to just pipeline a terms little this that interested overall more We've were are into bit the a expanding seeing In customers pricing come then in year. out QX. in the of overall and we've slowing side, comments, year. of few close some we made I were coming and

referenced than closing rates of New this in numbers what terms our has higher quarter. for pricing I been

average the continue to as expect quarters. couple through would see in year, we we've to up the similar So rates what the move last seen we of

Jeffrey Deuel

We so David, occupied to management real to. do. Bryan's do only process comment estate much concentration we that have non-owner about there's adhere we the can

guidance last up that from of If its up you you'll funding tied to was able That's against a what popped deals go that see XX, are constructions little closed year interagency bit. to we Page now. stack how to -- loan new you'll growth the our that the see part standpoint be

And watching real comparison So estate, up XXX% guidance to it also on up guidance. has in can you that crept we're to then total popped closely XXX%. is because XXX%, XX% see to it the

I think of acting governor. that, bit that's a as a

to are add being would we that, about is. I Although We're doing still selective just CRE. lot more what a that

David Feaster

seeing last was are just seeing it makes That one. a expansion. perspective? curious big But sense. you're Maybe what -- and the but of you've lot know your Jeff, question, I just that you of opportunities more market Obviously, for there had hires success, just part from a

Jeffrey Deuel

Sorry, we while to around is environment. -- if people we're add things to We we're right sitting relatively are are now, But folks now high-quality it's not that always team where culturally. opportunities the that. this moving fit quiet, missed open to necessarily in

a Eugene We with area. have Boise the to and lot what focus we've in Vancouver got Portland, down and on

near us that in be over last we've of a anything like the not out term probably is lift you probably going kind think might see twosies the done year. I do to onesie,

Operator

Our Clark comes next question from Sandler. Piper with Matthew

Matthew Clark

going First slowed. Loan the mix funding on forward. just growth

the here, for borrowings loan with the here I'm grow? think flows half. should trying even you you deposits trying the sense increase it to to of be say get maybe continue we a you $XX coming I'm assuming imply kind guess That to That's do the consistent about can get not? cash sense just stabilize Let's a would for, upcoming or net growth in million. quarter. investment of portfolio cut I in off

Jeffrey Deuel

tough a question. That's

say, for essentially at a just Matt, to So end And stabilized continue we the to the trend progresses, started bit but quarter, to find one have potential expect up the especially competition deposits in circumstance happy will that of with ourselves I'll the the is for rate deposits and hike. little would year as be a pass we Don. I that the

we during don't stability, lots to the add rest I like think we that you'd dependent know expect do steer towards have of would rates on that. growth, a be of Don, will if I to can deposit comments and but probably the couple maybe So of deposit year. you what

Donald Hinson

Sure. Matthew, the investments. on throwing the on -- off average. you're They're right

put on we deck our this had a to new time fact, slide In cash flows. in

of actually lot on uses quarter. on So much But funding this can need funding up end that. loan we at hopefully, you how at side, look for a least depending the the

If either -- at this this expecting because more say same even we have probably anything QX we've we borrowings. would stabilization rates growth on we do in point, any our attractive time, to some I point, the or at never not are around -- that But to got if at just won't just borrowings. the you down we we pretty corner what's going pay know happen and deposit

And are be in -- probably earning our Fed in I'd -- of those rates, the we're so especially the the and earning overnight low raises Xs, fact, high and we'll cost Xs. -- once borrowings

I'm stabilizing starts -- start pay and maybe really everything we really And rate those so down until to hesitant even cuts. seeing

not again, not So we them I another see think runoffs. -- probably But don't going to more deposit of to pay borrow I'm unless expecting surge off.

Matthew Clark

more quarter benefit FHLB just trying to sense then transfer saw from on deposits? the And the you side. quantify for Can couple of to also that. And BTFP? if what get a Just the of was of the timing a the full pipeline funding Okay. we

Donald Hinson

blended it But I'll start I is for rate X.XX%. pipeline. can think remember I rate, exact timing, Bryan blended maybe The -- talk deposit funds the don't about actual May. these was Well, the

And we information. a rate slide slide X.XX%. the slide But slightly So too. it there's blended is deck was -- that, only on than on in on go-forward the deck the different that showed

Bryan McDonald

deposit with that and them on opened outflows the on it count or sort we Matthew, and of and to customers brand-new pipeline, about new open million. was million, doesn't associated from deposit for $XX commercial funds is is customers we just and banks. coming bank. transition this the to thing, existing about the a that's accounts, process And for typically the million. the It $XXX accounts the customers deposit -- balances the with particularly quarter move was last And to balance associated Customers for opened customers $XX

come So it all typically XX of sort that days, week thing. within doesn't a or

Matthew Clark

last one Got it. for then And me.

million on to wanted Just Was rate deposits. not that -- interest-bearing, total was the clarify spot $XXX right? interest-bearing that

Donald Hinson

Correct.

Operator

Rulis now Davidson. Jeff with turn to D.A. We

Jeffrey Rulis

growth on -- question covered the you of expectations well loan pretty pipeline and the on sort and headed. A both we're where

the any guidance there? on to of it And visibility this draws wildcards called or are that an on to one maybe and Just any on element advances Is is comments. the your think lines that. seasonality -- addition out existing layer there stronger in that? trying you I as QX, QX kind generally to of quarter based

Bryan McDonald

it Yes. net levels you originated the look really difference the payoffs. was the of on quarter-over-quarter. Page bulk the advances at Slide on what's We on and Jeff, if loans, at balances XX, similar construction that's driving of which bottom, commitments the has prepays really had detail XX, really similar the you see

So it the last really advances that higher those difference in loan drove versus quarter. growth net the was

the be So construction are commitments to pretty level where they would something similar last with reasonable. quarter of

Jeffrey Rulis

this combining we got is Is in talk of that terms of a about at some be could there. So advances and kind piece comfortably those fair that a room this to grow incrementally I maybe a you may if about? as yes, bigger that more I'm of mean to looking capital, Jeff's comments trending piece XX. are say up, percent with

Bryan McDonald

normal you'll loans back Yes, would more move higher. that a closer in bit can what quite back see to you XXXX be those on something level was a see balances the to construction bit little up

-- didn't that and cases. lower pandemic low-income of through pandemic finance so chunk the of finance very chunk it's a the of up. of we component back big and funded do lot and off So those course, new the parities then There's then, and coming lot paying up commitments point in at a out some building debt loans we a do, out low-income obviously And Those we pandemic. of of a housing you don't the ended perm construction a perm into of came if of to loans or have options most housing, they outside are nominal. we

peak does But do see that when activity have So the room turn? pandemic when really run of prepay it then up it's and before happens. we up coming you pick more again to the out that

Jeffrey Rulis

I of Yes. expect XXXX, at that's you're XX% revert I to like commitments that if half outstanding to Or basically less Bryan, guess, I today? than look more mean and a balance saying levels? would historical it that to you

Bryan McDonald

Yes.

Jeffrey Rulis

Okay.

Okay. one maybe quick a margin. just for Don And the on

expect said beyond? in Can you and thereafter. on not margin think Or what then get of time But talked the at of the compression the margin I the -- sort didn't stabilization was the about I you some QX that that time was line on third the quarter, just I get second. magnitude expectation?

Donald Hinson

not Well, I I'm time sure gave line. a

to by Again, happen. going to it's much it's to we'll that's for do I it predict least of compression, much X.XX% would decrease see both I assets, a then was but But less. to of X.XX% evidenced quarter, continue to stabilization see probably in think on for a in point stabilization. stabilization this of the any they yield we going margin margin saw if costs, starting think lower. scenario I weren't at quarter and I It's hard do up more than a will our more balances where QX mentioned we going that the a some we're see be when be the to think that June,

Jeffrey Rulis

Okay. one, maybe last All it. Got right. a Jeff, And I...

Donald Hinson

clear, for just in X.XXs quick, quarter. kind And just but be thinking maybe very for the this high of not more range I'm real to that definitive, probably next

Jeffrey Rulis

put Yes. helpful. And Okay. it. you missed I on a say timeline it. just that That's didn't I

capital is the XX%. Jeff, talked think on I my it radar conversations having active? that's it maybe maybe But to I the and And off of a thought but And capital that grow areas to was CETX a Or is your were use. quarter, if looking Okay. specifically maybe kind more sideline you on light the you close revisit a discussion other your as for every on M&A priorities or the deal in off, bit. had buybacks, cash bit? of you I but pretty -- were was Just you on Board, capital pre-pandemic, for just guess with just nearly wanted is that sideline for and

Jeffrey Deuel

to all Well, staying We close be we M&A to and recent said Don strategy. apply probably that on buyback were Yes. as in side, banks to aside, But that's pandemic we're before more set the quarters, best anymore. would set available we've close we and something -- the the in not the to know like.

interested or the We at keep minimum. about to present expect a story the do to imminent And acquainted but to Don, we'd in year want have balance fresh, general, urgent. ongoing of you conversations stay for just just I -- be nothing buybacks? in continue probably and stay the wouldn't anything talk to itself that

Donald Hinson

this be were involved year, of expect Sure. to little We at this in kind a it but heavily year. we point bit this don't really for picking at buybacks

Jeffrey Rulis

is And I if you maybe What's valuation? get active? don't to mid, macro just growth for is a of sense be that's trying a the product digit, driver why single mean, think environment? -- Or the it high of more you'll why that too

Donald Hinson

recessionaries a our loan to could that to down be coming us of addition line. grow certain It's aspects combination potential allowing in portfolio of the

result. point a we're this kind of active that's at point very be at going this So waiting and as just to again,

Jeffrey Deuel

nature. our an generally conservative it's think indicator I of also

Operator

from with next Our Stephens. Terrell Andrew comes question

Andrew Terrell

could I if maybe Jeff, start.

mentioned now, you're in really right I but understand of remarks You if just backdrop your right you to fronted the if something then closely opening still normalized where really portfolio, credit prepared the kind remarks? I elaborate that's in tune book that in levels. any, maybe maybe watching curious around could heritage. of and And more And what on the the strong comment you concerns credit specifically or was more quality returning have the across just what macro seems now?

Jeffrey Deuel

in want Yes. And join to might Tony, with you this response.

standpoint was on we're the a before from right what, a charge-offs in now Tony historically that minds. And this pandemic it's to is and primarily, our normal credit think quarter. it little quarter, $XX,XXX us. that showing, when That's quarterly abnormal Andrew, were $XXX,XXX reflecting feels so clean I the not

point. So to just at category see will coming normal trends specific from that right our it any belief don't is now. some We return

everything talk As right pretty outlined, landing. a downturn, stable of recession now. a or There's is lot soft hard Tony about

about in And I contributes quite frankly. I waiting itself going -- in we're but want to capital. we to it's I that you may out. that that don't also We're think the to and are Tony, form going how think whatever nature, generally we're chips to and play question to play to see be, present add to things that. mind, until anything think just going have our with specific for them Jeff's hold in keep we to conservative

Anthony Chalfant

that Yes. a Thanks, of very, environment. kind back slow here. more we're normal. very really a on don't we're a we recoveries a think quarterly that seems a net talking a we seeing What credit is -- been look starting relative see about as to a very, we were When very normal. we losses Jeff. move Andrew, normal again, go, to the now XXXX, that's term move basis, like, it's few And is through little normal slow to

had maybe covered Just the that system. internally, by some were money in that issues the you're stimulus seeing companies maybe management

into moving sense and XXXX. point, move. at more things this that in go through team management we But a maybe those bit some it each modest very are our of credits a to that, quarters like very, special leading assets kind turning slow of manage to can we just issues Now the very as are just few

risk office portfolio those quarter, as at, for we're on It's of next we areas as that office a bank, like loan several think to look look that portfolio. as we'll the a been posing the in I non-owner took through reviews special stable. far I'm the do we we're deep second keeping mentioned, every quarters, continue and looking close our of clearly, and eye at As sure. occupied We areas more it, of portion some go more that are

Andrew Terrell

could the look for follow deep you average sounds find throughout seen I Did real loans the $X.X reappraising as you have revaluing standpoint any just I of stab focused just guess the it did or you in I up that take average changes throughout a size, you like maybe from properties, using it. comp-type dive? on appreciate you office that math what guess plus. went at And the I the portfolio on as have Okay. nearby? if loan loan-to-value actually, million an occupancy at occurred just transactions process? some portfolio, review. And And above any

Anthony Chalfant

looking we net we at mean be were looking I than coverage spending impact is, on kind is the a average for those would of And some that rollover on service saw income? example, risk, potential we was debt at back Andrew. I if mean, basis operating one loan-to-value. selective what Yes. there we The saying, are in were where time portfolio more probably pretty loan-to-value significant low.

is with expectation the look debt we coverage would while we service before that, not have an at have loan-to-value. issue have So an issue probably with you you --

almost at potential months. that at category. XX of back want causes look to when had next a those. rollover to significant So looking I'd comes Nothing those we up downgrade, see end or keep looked if in that would XX continue coverage. the caution we that some did problem some we'll say a we We with a that to And loans, with that yellow service a issues it at to to just consider in always warrant debt a but the leases most few be --

Andrew Terrell

you And across XX? those average Understood. occupancy have do

Anthony Chalfant

And kind a basis. We a on kind one-off of that. we're more didn't standalone calculate loan each a at of looking

Andrew Terrell

it. Got

Okay.

this rate I missed remarks, might prepared have the forward? earlier in tax but estimated an moving And sorry,

Donald Hinson

Yes, that was XX.X%.

Operator

We to Motta now Kelly turn with KBW.

Kelly Motta

of laid coming what incremental the the with color across growth if been might growth and back of and could and expectations? and to what I kind terms done those kind of Most the much all is branches Idaho Maybe answered Eugene. are your have from already. of multiple your your how out tracking items. to newer of loan guess I turning to relative you provide asked in appreciate you've you've how open expansion

Bryan McDonald

the here of just at excluding MSAs, the opened has Slide Seattle is a the bottom XX at which couple this on of the includes deck then detail one all this Kelly, top the year. new and Boise, the teams, Bryan. Oregon, of

that after So numbers quarterly you in the XXXX can see there then and that.

there since So started the reflected teams those growth you can see in that.

And other versus Of teams. the course, slide at that how or with we changing market's how anticipated. terms put there above those targets trying of what have the some down then we in the originally picture your in just to loan out, them the performing to show there growth relative teams existing new targets had market set well. we question those we of as is in a the to we're But

Kelly Motta

then last what Great. and several us relative give I'll you're been that seeing update we about? That's kind obviously on and back. me you a your West, There's of aware focus Can step any out lot helpful. markets Seattle, Maybe super an markets of on differences for be across Portland. should

Jeffrey Deuel

improve. Kelly, the we major think, to see areas I metro continue

downtown It as example, Seattle Just in use I areas level But Bellevue vitality heard is great the better but always are slowly. slower looking more coming we through region. back, depths during over it couple on during the flawless summertime have open, day. progress. so is and making down It's street areas downtown the single more we the times restaurants the last of out are that also I've makes months. few there felt has the bad as And And one is the of is, you activity pandemic. of to is pandemic. example. an come whole -- of can morning, better. the a the there's how indicator which bit day. little an that the -- more the There's this the about and they Portland complaining a looked a -- back none the traffic typically been every road too. here, of person I sun use just traffic than if nicer feeling lot it a

looking So up. things are

Kelly Motta

I cheering and back. we'd but step I'll hear. traffic, never the be color to appreciate good thought

Jeffrey Deuel

as ball, and around of odd an well. too it is moving trucks But It irony. happy things see we're to lots Yes.

Operator

now with Instructions] Janney. to Coffey [Operator Tim turn We

Timothy Coffey

Jeff, put would now? Are materially deposit about at can around the your some that I in could you right deposit where talking I comment range expectation year-end. they're the context of want to where call at increase the that the through beginning or remain of see if from they pressures now about rates kind of remaining they are

Jeffrey Deuel

referring think of be something don't potentially was pressure be there's there's go of will earlier the when causes raises from was to people's top the minimum. they're that to a mentioned what I they're I year us we it them also ask to. existing for end there's that deposits while the catches rates, it what whatever. Fed can I more that going approach the the if makes going think competition I that and -- think maybe ongoing And up on more I think think, there I That's I of reading at attention, to or do. it wildly. through sense. just newspaper Hopefully,

Timothy Coffey

the of Okay. commentary, pipeline well It does. the too. as with It rate does. as spot gels kind And commentary

lot here, from down? the of built so loan that were provision a would slow If conceivably sense. growth of So this was then, in the loan to off come growth. makes quarter And provision Tony,

Anthony Chalfant

take probably Don, you one. Yes. let I'll that

Donald Hinson

-- a kind just deck is the And overall, on does this in we it say you might the again, actually of most to of Tim, Sure. our chart flow. rates, was think, a volume. have, I due that

volume mix, if little decrease. right? balances a we've the a but has growing some decreased, overall percentage yes, so bit would provision as decreased, -- in steady, the But percentage The the there's would then little. change probably as been pretty been probably And not, very

on sure somewhat the more overall talking about talking you're balances. balance if -- or be will I you're if percentage? But it dependent So the wouldn't

Timothy Coffey

talking two-sided question. both, I’m about

Donald Hinson

I a don’t the at loans the change the as which factors part also minimal. depend calculation, course, and and expect expense balances then, will lot a is this to has whole of the point. change again the the the then which charge-offs, doesn't been as of -- other on But percentage of percentage provision very

Timothy Coffey

Right.

So remain they where that of -- kind yes, are sorry.

Jeffrey Deuel

and our not conservative formulaic it might say we've going high as as that rules. mentioned a follow at would to desire just just nature, we But us. cushion keep to surprise is as a I which be anything frankly, that think can, have we was come is that that to against quite anybody. to I But the our it

keep as to high So I we think can. as you'd trying see it us

Timothy Coffey

noninterest for The makes Yes, a follow-up Yes. Don. you, that for expense all expectation was XQ, that then what again? sense. And

Donald Hinson

be to That back that XXs. in low we're the up expecting

Timothy Coffey

Okay.

Okay. Perfect.

Donald Hinson

again, quarter, Yes. accruals. this because lower of It reversal some some was of

Operator

This Jeff closing concludes CEO, to back our for Q&A. I'll now Deuel, hand remarks.

Jeffrey Deuel

your investor Thanks, up of forward quarter's more in our in some no looking Elliot. coming Goodbye. of ongoing you Thank for We performance, several at time, questions, thank weeks there's support events. we'll Since the and this you. wrap to you call. your seeing and your interest we're the

Operator

days. gentlemen, Ladies will today's of next call replay for the has concluded. conference now available seven and today's A be call

by you participation. diving thank We'd to access this for access can XXXXXX. and You your XXXX-XXX-XXXX then like entering the code

now may lines. You your disconnect

Heritage Financial (HFWA) 20 Jul 232023 Q2 Earnings call transcript