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Heritage Financial (HFWA)

Participants
Jeff Deuel Chief Executive Officer
Don Hinson Chief Financial Officer
Bryan McDonald President and Chief Operating Officer
Tony Chalfant Chief Credit Officer
Jeff Rulis D.A. Davidson
David Feaster Raymond James
Kelly Motta KBW
Andrew Terrell Stephens Inc.
Matthew Clark Piper Sandler
Tim Coffey Janney Montgomery Scott
Call transcript
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Jeff Deuel

Hello, everybody.

Sorry for the late start. We had a little confusion in some cases around the access code. Hopefully, you didn't have too much trouble getting on the call. I'd like to welcome you all to our fourth quarter and full year 2021 performance update. Don Operating CFO; our Officer; Officer. are President McDonald, Chief me Chief and and with Hinson, Bryan our our Credit Attending Tony Chalfant,

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

portion at posted Relations heritagebanknw.com. updated the an which website, also quarter investor our We on can presentation fourth Investor of be found

our presentation the release. reference the during performance with forward-looking We're in will Please to this fourth We refer the press statements the pleased quarter. financial for call.

While this see loan with and utilization, quarter of growth ex-PPP we was pleased the in muted lower quarter by -- commitments. the we're trend new pre-pays by positive number very payoffs line

of efforts, the outbound transactions from our proactive referrals, coming customer new are deals. of We getting portion fair are calling PPP share good recipients. and new And a

carefully it the We reasons and consolidations XXXX. growing The same pipeline our focus through maintained with $XX per success stay in flat number. about non-interest expense NIE our $XX very expect to continue flat continue deposits strong, as is branch XXXX. to we relatively runoff good managing from the essentially year. in to expenses the NIE to year-over-year, at evidenced see is quarter and We to grow on through million million with for expect limited we

play and Year. of for pandemic our the at year. leaseback on for real enabled very portfolio much a and closed be quality as us risk portion report potential actively and of we footprint environment of sale build the the reserve on organic estate headquarters profile this positive wrapped M&A Olympia, continued continue well to our recedes. recapture throughout New year loan It's trends long-standing the through Additionally, Notably, reducing point exciting more have us focused we as facing to Staying from the by on significant managing focus a end continues we XXXX growth and at also opportunities completing focus our move campus to credit moderate out to our the up business credit our the XXXX. which our in improving has

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

Don Hinson

Thank you, Jeff.

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

million due $X.X or results, income decrease was due This As from Partially, loans. XXXX. unless mostly was decrease of of XX% prior will balances income income, a of financial securities. the otherwise a prior all an interest from $XXX this million million PPP is net investment quarter. of in in I Starting the through walk to offsetting period with noted, our there an from the mostly third with increase be in to comparisons $X.X of average quarter increase increase investment

We have purchases as impact in large active be margin our decreased, interest mostly declining been and expect core overnight well investment very loan of yields. position. lower due to net cash continue the as PPP, due The to to to

XX% overnight to for sheet balance in compared of information impact the and decreased will in quarter. discount in rates strong deposit in We to loans XX as earning XX% addition few Trends had prior re-pricing discuss in X.X% increased new loans the or deposits advantage million years. over at rising and deposits the or a adding as the two the year. position on have last the of grown growth. of Removing to investor Deposits basis than million XX% billion interest-earning for production $XXX In the of asset in as shown average Bryan yield the are another $X.X current low a grew take the and rate These or being results environment. When PPP QX, assets accretion loans, in XX a on points addition, of minutes. were rate XXXX, average growth floating earning $XXX well quarter presentation. originated deposits composition overnight balances investments and page to assets QX grew loans in XX% portfolio. lower

During same investor on basis to our time, the of as have decreased the deposits we cost shown XX points presentation. nine of page

All combination strongly and capital us as position continue remain we liquidity above and thresholds our regulatory well-capitalized The continues to capital gives tremendous of bank. grow of ratios flexibility liquidity our strong to the increase.

more on of XX other the quarter income an presentation Non-interest of primarily gain assets. increased liquidity. and due from You investor $X.X the sale million prior to specifics increase page can capital on refer in for to the

leaseback As we building our Jeff and we headquarters the result. completed in sale as mentioned, $X.X million a recognized gain of Olympia a

see in combination We asset a to management due of and continue overhead ratio to growth. nice improvement our measures expense

in to quarter levels. costs accounted These increased of year prior Non-interest $XXX,XXX QX X.X% to about total a for QX expense these the $X.X Our and expense in incentive over mostly accruals. due increase increased payments in to for non-interest X.XX% XXXX million increased approximately compensation XXXX expenses, payments accruals. compensation overhead X.XX% with the to elevated expense incentive QX, items severance $XXX,XXX to due Even due to and only XXXX. from severance decreased quarter-over-quarter ratio two elevated related compared

levels. our FTE over through decreased XX% the XXXX QX In by past two years, addition have from initiatives we

will benefit and beyond. us Our in XXXX to efficiency initiatives continue

overall to and for reversal our a quality million. occurred in improved nonaccrual most a to economic decrease the an and the in pass As credit loans; of changes earnings credit significant metrics. balances; in decreases on loan the construction for a was in impact loan of XXXX, continued outlook; in improvement update now for notably QX Tony, C&I have reversal provision I throughout included: will $X losses credit metrics. provision amount will mix who quality a Factors the these call

Tony Chalfant

quality quarter. At credit experienced what XXXX. we're key continued in our we with Consistent for Don. our report fourth last to quality improvement metrics pleased you, year-end over the quarter, year-end, reflected significant Thank credit improvement

from or prior XXXX loans from declined X% For now quarter, $X.X levels. XX, by Nonaccrual XX% the the fourth December our down nonaccrual quarter. million loans are

year-end, of primary or due of factors. X.XX% significant loans As improvement $XX.X The nonaccrual loans. was to total year-over-year three million totaled

pandemic. number well COVID First, of or Generally significant we pay-downs had strategies. long-term have start on problems were begun and before payoffs of loans a loans that not the successful of result were workout the the the these impacted

The Second, XXXX, nonaccrual there nonaccrual in status million. in were on $XX additions yearly Loans during status $X.X year. just placed on over nonaccrual loans totaled just the few very average to million. and was XXXX placed XXXX

there to few a nonaccrual borrowers during in XX% substandard, COVID-impacted declined approximately or status were them factor, to third accrual was one Criticized Their end the $XX million special those allowed a by us since mention and status that XXXX. quarter. of and significant the the performance year. back XXXX move As in risk-weighted improved smaller on placed loans, third

Over have loans million We're that the XX%. a last by almost criticized getting in economy. level to dropped XX months, we close or a normal $XXX good consider

remaining Within portfolio As loans. be of we level. we lingering XXXX higher impact December our The this is XX, of hotel largest the pre-pandemic to at this to than were criticized criticized approximately year-end, have portfolio, elevated COVID contributor $XX level. consider $XX or on what million loans million

yet a properties the to performance flow, they're demonstrate warrants of to level that at a not improving cash return pass a continue underlying While rating.

in loan expected slide With of we be There's that upgrade to new the of our that year. the a in is trends travel and in the our Page levels should slide industry half continued criticized these XXXX, XX. on presentation shows the improvement the able in in loans many second investor

During spread quarter, between portfolios. by partially charge-offs Total our $XXX,XXX. in recoveries fourth $XXX,XXX we of and commercial charge-offs and the were $XXX,XXX experienced net offset were consumer

year loans. very X.XX% the This $XXX,XXX net in For charge-offs. represents experienced average we of low a

the approximately million. Oregon expect economies our economy. and As three-year well net XXXX. a turn the as Despite see XXXX move who Bryan, on very an reflected will year-end. COVID to into very related us the some in call and give strong average issues, chain at in the period outperform credit a our now annual both pleased labor I'll were XXXX through XXXX. to comparison, shortage With performed including we of culture quality was $X.X Washington our for in well headwinds remaining We update positioned supply quality loan metrics over we Heritage very challenging is strong credit loan this to Bank production. charge-offs

Bryan McDonald

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

presentation, commitments pipeline closed million of refer XXXX. loan teams million the fourth loans fourth QX $XXX additional loan the quarter $XXX to new last and detail from for million in new in from up from For quarter $XXX and $XXX down ended fourth Please $XXX our in quarter originated of the quarters. of investor quarter commercial up the million million up at the XX closed page over commercial $XXX at million five the past the end XXXX. last The from quarter quarter on

trend customers of in seeing Washington the and July been of And of being and into new quarter the volume SBA requests prospects the loan from during the this have first and quarter. an We offset many loan a when are seeing of construction XXXX. governors continue percentage commitments. loan by lifted quarter increase since was quarter during XXXX declined restrictions. The production higher to we new due the being Oregon of the unfunded the during Loans payoffs excluding million prepays fourth $XX the PPP decline increased pandemic higher

the the construction high additional shows investor construction range fourth loan $XX construction XX% the $XX utilization outstanding which of million rate during on XX loans Please to quarter. decline presentation the Specifically of slide down the at the quarter. unfunded while from a decreased to commitments refer million, for in end loan XX% details balances increased fourth

of million and which credit, in quarter. the quarter begin the of declines these loan the lines down averages home the XXXX utilization up to quarter historical the XXXX. $XX fourth in was last and will approach the from new occurred million in recapture majority construction production rate that fourth $XX quarter equity $XX As loans see Consumer fourth million from are for we of fund balance

an a the of indirect business we fourth to in quarter. quarter in XXXX. discontinued decline including continue balances the lending off, As million $XX fourth reminder run the our And consumer

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

In addition $XX the XXXX of million pipeline quarter of loans end. volume The fourth $XX XX% new The was mortgage XXXX. third $XX the in will quarter in closed of will the million rates X.XX% six third refinance $XX pipeline the all fourth mortgage million the quarter closed the XXXX. to average of we quarter quarter. new million Refinances quarter be With the XXXX quarter million X.XX% in basis rate compared decrease anticipate points versus in quarter up at in last from $XX lower and department fourth fourth loans of for at rising overall mortgage interest $XX and made in ended volumes XXXX. the quarter million up and of

process to SBA continues on progress PPP Moving smoothly. to forgiveness, the

of in of QX slide quarter the end had at investor originated loans original As XX balances on XX% $XXX presentation at the $X.X PPP original of outstanding shown million. only billion the PPP still we

In back extent addition, the to now processed have the been call we SBA the very these claims quickly. filed paid I and limited with will have Jeff. to turn

Jeff Deuel

Thank you, Bryan.

coming our performance deals earlier, from in emerge new We're bank high-quality nice the customers pleased production from and the across we with upswing pandemic. mentioned existing we're organic a with seeing As prospects. as

new are We the believe of talent opportunities of as book in a for historical to growth. to markets. single-digit result add loan dislocation to get year as we're level back there the that customers optimistic production We will that And team, are progresses. we our to the high prepared

and expect to base see year. later expense expense control we focus in will We the begin on dislocation materialize year continue rationalized to to we However, don't in 'XX. our till that last

our continue consistent We which to well to have customer on experience operations, evolve to more designed us strategy and we bank pivot to continued positions efficient grow. continues as is focus a also technology technology to more and support

Page last of new included strategy. deck into more a X production For slide coming beyond. segments you will of that overview have online that of several 'XX technology reference segments strategy and And see the with year on we in investor our went

the see when pursue to us. in the prepared area are right X-state for We we deals acquisitions

and of our mentioned conclusion liquidity provides opportunities. a robust capital and As our comments. take foundation earlier our with That's address Don prepared challenges us strong of levels advantage to the

So Gemma call to to we're up folks call ready that any open on the might questions have. the

Operator

been Rulis question of in has had We've Jeff moved. Jeff from now first -- Instructions] [Operator Davidson. sorry our Rulis that D.A. question from

open. Your line go sir. Please is now ahead,

Jeff Rulis

-- for Jeff. morning, on Good maybe you. Thank Question all.

guess with auto puts we runoff, outlined think increase. pretty line and your 'XX expected takes of the enter loan as to construction you well. credit I I less

your the credit sneak the are bid that demand got Jeff expectation. positive just big But picking in and rates terms could a loan think the guess on thoughts piece I growth of payoffs which you've you that up. Any in the higher side. originations, little payoffs with guess a little the you I that? somewhat high minimizes if is You've more and you terms mentioned in some in bit of maybe engage of done lumpy 'XX? net single-digit

Jeff Deuel

part hard rather we're coming when for the hard he'd the back has it lumpy has prices. It's to you probably it customers thing will been sell seeing it in able environment properties, comments down those it's us to another business that of as or we in though to little pretty also forecast. or of some when presents thing The at another And they being a another that to reinvest money a to high we're I'm to robust payoffs one actually Bryan occurring back that and the tell sure in turn see Jeff, like But form building. us ties businesses add. loans I bit is itself. with

and hard facing they to probably what what to So, for know couple up may going I they're It's years. of quarter as think we be going past have the we're be quarter down. be prepayments just to

more Bryan want new to think us payoffs. of team the focused those for on thing offset keep developing anything help origination add? I the to the net important to all of is prospects you those impact

Bryan McDonald

the more or Jeff a the target. we at your deck, seeing if look Page QX eased investor just prepays, we're $XXX Just XX million of up and million picking after little with the now the last $XXX new in bit on month restrictions governors the you really point did QX, is production a Jeff

up and little now we're So deal -- We're a pipeline quarter. seeing that continuing. where the higher But seeing good we've we'd love deal to than right the get seen is good flow the July that's ended strong. it flow since

to we through year little couple on up get a off last went pretty expect to funding the at numbers But at economy getting million results strong So, based in that for would that not here payoff production maybe is far what we the so selling are continue as there And the like $XXX mix the we're in the with second on looking quarters. $XXX million quarter. more the least last Jeff strong real a Northwest. looking new maybe estate. prepays how that half of month that's on the or volume the far bit production we're elevated payoffs least normalized we're a close We'd of in as at said the this year a and and in seeing we're The at market customers and higher we year. gross pipeline based saw selling going businesses

Jeff Deuel

too facing hard and which in down customers locked predict add with we the are making in experienced been with pretty we would we any of country. we've you're predicting that in much not to still is have two-state here what than person buttoned where area makes how in we're I pandemic a lot But come are other they're longer contact a Jeff down none are and us of out essentially form. of region it familiar parts of And in the anybody. our prospects but

little it also to predict. makes to sort and of out. bit still deal that with got that difficult And we a factor So,

Jeff Rulis

XXXX on into there? it. -- line. of that Yes. the you you well if just of million incentives. incentives. thinking $XX kind to I about sort Maybe And of kind in some severance in am If think checking I just you wanted of see I the increased million itemized expenses get you if and -- the severance hold rate about just $X.X million that would for expense Don $XX $XX that the guess of backs that the Appreciate in range. down out maybe the then rate from not recur run that's back of sort but million I maybe low right? mean you're

Don Hinson

and it overall think right you're I grows year. year we that's rate out QX could between I you of should you're going year. But back decent kind this bit down for starting million some throughout $XX QX. always expenses Well, a But during run from why our in say But there be if little the the that run QX, million a rate Some be. to back think People there's be the $XX in obviously pressure in growth -- I for because year. raises $X.X million -- where the think that's wage wage

Jeff Deuel

bit an of from that that which created got we've from we it of XXXX. programs with really XXXX, present reserve Jeff interesting the until incentive see but recapture piece standpoint the the a the benefiting didn't in is earnings dynamic little

So, bit timing out. there's bit Incentives regard first of a to and they we're timing get commitments the going close how year. part there in a the those difference there's paid of a difference a funding play when see commitments also on the with to new and of probably

the and will settling And how So, timing. of there's think a coming economy to contribute little I as And bit also impact said. we're think I back timing that as Don that's that a difference just an there. down

Jeff Rulis

a That's lag it. in I'll little model. leverage bit and the helpful. back. Maybe some a of Got step

Jeff Deuel

you. Thank

Operator

please Raymond question. James. of David, ahead in next Our comes is Feaster your open, your question with David go from line

David Feaster

morning good Hey everybody.

Jeff Deuel

morning. Good

David Feaster

about structural single-digit up I or through to originations growth follow But have and right? what sounds kind find those? paydowns. and I there? things both asset you're and walk guess on the that thinking with guess deals you from see could deleveraging. I accelerating more we two slowdown sales high or and some maybe just It originations growth in reasons? doing avenues run I that more back accelerate you there kind either takes side you guess are it's on puts seeing the just And mean to of get rate and to of you payoffs of guys of are I paydown on We do pricing What like productivity? see the outlook. want payoffs then a just passing the

Jeff Deuel

of maybe think parameters could around maybe something I I'll beyond with or that think approach the things tackle say We is you and That's to regard think kind talk ask double-digit But And maybe that but some of we're I the have than to that Bryan from we're operate the anecdotal standpoint. expectations hear our why we give a risk certain with self-limiting. that's no Bryan limit. would this overextending with us going parameters. a less in not changed color profile. certain to for seeing prepays. one volume in a terms we some part don't loan credit normal because I that is about which typically our moderate of David think a our you we production is say impact stories of the what I cause striving we're degree you

Bryan McDonald

is the within of David on page the point investor reference good portfolio. XX on a Yes. what's going think presentation And I just

QX we unfunded. million $XXX the originated million, but $XXX so in $XXX million outstandings of it on So million that $XXX was

had actually went utilization And $XXX bit a of look actually originated during just million payoffs. million you a and $XX in to -- in so $XX of to And little was prepays payoffs million the But was payments an million. net look we had $XXX And QX Rather million if then and in you million million. over it unfunded. increase in you prepays back $XXX a million at $XXX about XXX payoffs $XX we QX. if and utilization month. than million at QX and If more there $XXX of $XX QX was it it drop we had look even then

look paydowns the payoffs in The impact change big was in negative swing QX a if $XXX $XXX at was was So million the you the of negative and just utilization quarter-over-quarter. million. in the prepays, and QX the it

swing So of call of you on kind lot and because difference there commitments. a A -- that was big of prepaid had will lot utilization we'll it in come the construction swing in a the pretty side. that those payoff back what in

think level indicator a I So better is drops. utilization of and hoping kind for we're lowest we're at that QX

down we're a -- Hopefully, the them lines on maybe $XX And But won't it see million least a go our we about won't in uptick drag. at be we in see Just won't saw bottom we maybe there. QX. at XXXX. hopefully big

amount If terms lots on still you debt either zero across we're not more go typically often deposit more real the in often balance equipment. of customers the term owner-occupied And line. a new mix of to come with of some or seeing an -- estate balances on than

getting of lot hard owner or exactly when are where a opportunities a either the last more quarter. in And new certainly market C&I basis those in year. that's utilization in customers of on up just saw we occupied. that from are dollars or you time kind non-owner the we'll than It's added being request. But call so construction regular predict we we'll see rate this to more And core regular the the tick the what were --

again higher number million total of at month average. a pretty think look good the to our a a million trying out is The we mix I a last you marketplace. if half pretty Everybody I little good think than But it's balance $XXX in for So normal something the -- certainly number. $XXX share the we're there certainly fair on loans production out that. get as the competitive. to more the That's but winning like the funding is changes market that's are year

David Feaster

just XX% on Obviously gears you excess at increased you north is an maybe your the on Okay. give deploying to in We're top you think thoughts assets And start then troughed some just the think That's of of here? couple that how color there just you'd color. the us then as priority. growth sitting we've of deploying the into margin. the cash. securities? mean just And earning liquidity? to any rate maybe and I total are about Could is switching helpful appetite margin growth mix to in sensitivity hikes? see asset first accelerate loan loan kind how a of then we expect do And react

Don Hinson

Okay. Well you have a --

David Feaster

It's a lot.

Don Hinson

Yes. Yes.

start purchase if with even We balances. which the million benefit Obviously, going let's us much usual. more. seeing start than rate that's is in continue higher So to investments. that we'll higher did until when at is about more forward of QX some $XXX going the And cash the not least that we like

depending increasing still PPP, going the to the course, balances. margin. start they need into start later on as it then going our we put in rate a think in in hit So we on we bottom have have seeing the of even to of It's decline sitting QX. that year. start are. are kind -- impact itself have will And The we'll loan we so see don't are of probably growth, to cash, what of far the that planning material to going billion do think which the as I increases think the more we margins if Because But I investments. $X.X were we we to still that NIM rates it -- it's on -- getting in I a

If in XX basis a on the up With I of rate, our help. think that's bps basically points you that XX% impact. will of it Page pretty XX to our investor floating see presentation, interest-earning if having shifted that has nine assets material everything about can NIM.

So big that's impact. a

help So a that's bit. I quite think out us going to

David Feaster

That's color. Okay. helpful

Don Hinson

that? have on a you Do follow-up

David Feaster

no. No,

docket? about You the Could doozy. you productivity how then that of of efficiency maybe And -- these tech walk the either about was on help the your from in some then appreciate some you year. And got I kind of initiatives what's a of this think just initiatives. we've were just of tech think or terms of all. us through implemented tech us some strategy benefits unpacked It and bit these it Maybe investments a slide.

Jeff Deuel

Sure.

customers are it's And now what the bank, but you as premise at to important our and which we we have of exactly feel have buying? also because look preserving to they'll us a several overarching customer want of lose and we bank vendors some the in of scale process experience. think wanted bank asked amount plan we did we community to to a that fintechs. we make the that's what I we future. the expect to under technologies bank believe that us thought certain of successful. we We And find grow from we integrate of think what outline the what to be to And create notion omnichannel we we is the The competition community needed identity that for brand-name at wanted us also the big sure instead as, continue is something, that's the built. why and over you can couldn't from community differentiates we the solution banking we control building -- that see Heritage refer line on people slide. But what what

delivery. to a place was didn't go relationship a things a information want done service and just essentially put a place to also for get We and as management call engine. importantly place We go to a to be information. monitored we fulfillment platform hub a platform for a it production to that also wanted So and

on the to expectation after employees platform go they hope the for morning everybody resource on we it which goal developed believe this place side. on will in a we support and tech that, sign the is to And Outlook. second or primary production our the So the whether or side becomes our become team you're

if it's slide, you So look at the all centered.

a You center and the going and confused that place up come that platform in they you side everything. over our calls whether accounts. go to banking to somebody the to talk with relationship to up see box. their essentially where an can you through information the and that and us need using where service those the center HeritageXXX, the to It's get point for one you foremost come to can is XXX them, manager. to see contact on come on Heritage online start matter they left come end but we're first whether with setting call That's that account to they essentially no get are or customers us, in service methods

So standpoint, we tie ecosystem where from which have decide can what APIs use. also but vendors technology that process through our to we're we -- HeritageONE, create to us, with ecosystem. the to call internally platform develop that is that we going ourselves can allows own And it developed proprietary a we processes we a

as up on that up look service we management which in tied over get being bank times enough you different to is getting on seven there's we touch loan online as it, XXX, process, a to have products It's is closing which to service in set the where many with locations progression of to originate question to the that got to our in all engine form have have engine through done. have is then part be diagram much about line side customers to we can commercial come get Management place. service your it And So service customer. new these the CRM. that seamless And -- launched our involved about all origination And in of and going other implement see right to on back a account place up referred you question, first eventually fashion. the also as across now being things The the customer system of we the things is savings allowing helping process the a management now we're gone we've treasury the at get people the the the where as for being Treasury how is and the opening this in David will used information That's one how in the we've as how loan is treasury get many in of right-hand launched. to you've go corner. not front to of to HeritageXXX, to sales pipeline then, answer example. folks the the which to

And that to too and a So combination our standpoint much to that regardless will the efficiency the come that's to experience. interacting a community continue a -- was with present service where from the customer as who customers get. are big digital Hopefully tied allow bank better and information we tying that hopefully experience we we winning it streamlined people and that enough. to us how clear of wasn't ourselves prospects believe is

David Feaster

you color. great Yes. color. was that much. No, very Thank Great

Operator

ahead our next you. go Thank Kelly, with KBW. question. your please in And question of comes Kelly Motta from

Kelly Motta

so much for on thanks for all tax Hi. Thanks that color the question. Also spend. the

jump that item? back up? it line $X Just Was the data run did Did $XXX,XXX. should to had prior running it down a Or XQ? rate at line, that for is come jump processing up about that to million with been more good that that -- there

Jeff Deuel

good that Kelly, let to answer Don going question. But, wanted to… morning. specific I'm

Kelly Motta

Good morning.

Jeff Deuel

To we build also this that, a make years started ago. point three

So, if of expense I for to some that of share increase could question. been answer Kelly's lot it there's specific that base know color a our has now. the you don't a while Don, on in cost

Don Hinson

because due that in due of was technology. and implementation fees some Part investments just other Sure. our was the of to increased part to cost

half. say So and I would half it's about probably

Kelly Motta

Did Helpful. something That’s it. Got --

Don Hinson

is be it in of going to some But -- the

Kelly Motta

Understood. -- And the yes. with buyback then

Jeff Deuel

I'm And that… you. add I Kelly, expect just interrupt wanted to to I sorry would --

Kelly Motta

ahead. carry Go need We you Sorry. off.

Jeff Deuel

process look around use No, a just cost have our has to Don the back us some early-stage around what do in own. cost of it about doing is it's on analysis wanted to this And and a that feedback of would to it to the party I kind same. we're what said add us what third

we're be going exactly -- want. control proves did, we're complete do the have we took what to happy we the getting maybe and we that So, we're when because final I if think we we be that path to analysis, true

Kelly Motta

I Got buyback. want repurchases like it, down It looks switch did came quarter-on-quarter. understood. to the to your

we avenues versus it at volumes, XXXX pretty confident other like is levels and as enter how on stock relative that the these seems stock attractiveness capital the buyback viewing about your and where of flip you're the you Just the side given production returns? are of also

Don Hinson

a are again quite hoping loan year. Yes, we portfolio to our grow bit this

back of five earn-back we've our mentioned buybacks anxious to And lot probably a level we're where is dropped years. not on a within buy So to it. The price was that attractive. it very

little of it gets may bit again a really first not that it low. If that did deployment. we that the dabble we quarter, it when happens level, choice last if -- wasn't down hit it's a lot. our but if But So capital price

hoping We grow it time. into are just over to

Kelly Motta

just get nitpicking I $X.X maybe buttoned run basis a on Mortgage drying Or seasonality is Thanks. good with this going on and million down that good substantially. is trying refi go-forward -- that some up to know there? up. And lot it. model a these? Those come loan Got my that in volume's sales. then rate the question in were to last a a just on Is

Bryan McDonald

want that you one? to me Jeff, take

Jeff Deuel

great, that be would Yes Thanks. Bryan.

Bryan McDonald

QX but different the into Yes, predict were secondary maybe was in or portfolio normally even to to really percentage the just a it volumes we volumes higher in with again actually significantly but into year. sales. up. A general little -- And what right the we'll strong construction Kelly, of ended market hard if either volume hold up in general will in more portfolio a in the year, we that volumes It going tell see I a the normalize quarter just QX. really hard to see, doesn't the fourth little than next with the rest think jumbos. Also, mix we of quarter

with market is my somewhat sales down So XXXX. but higher secondary end a is, volume of we'll ratio QX, we from guess up in saw what overall than

Kelly Motta

Got I’ll it. it. Appreciate much. back. you step so Thank

Jeff Deuel

Thanks, Kelly.

Operator

go line you. comes your next question. from question Thank Stephens of with Andrew, Terrell ahead Andrew Inc. please the The on

Andrew Terrell

morning. good Hey,

Jeff Deuel

morning. Good

Andrew Terrell

to just maybe start. Jeff

mentioned quarter think of can that question kind talk XXXX? to broadly yet? in you you for moving catalyst a guess, more materialize just I you into potentially about last be in announcements just And then for your your a some could expectations of us seen that for Heritage have the XXXX. more footprint M&A M&A potential conversations I recent

Jeff Deuel

Yes.

be As of but right those and I to us making in itself region. presented sure if bit stay before imminent there's stay are anything continue. that, that's with acquainted we've would close time don't And not conversations we now to mentioned something I feel spend Andrew that year. during a we the that surprised also interesting the banks the

past. too region. to for There's of which of see the pursue follow we're The disruption poised combination benefit right make stand from banks opportunities number our we touch have when obviously we any in are comments we in that Columbia early that sit. the and deals combining to the around heart in is like There So us parameters we going for -- move to us said and same is it. little the a -- forward good my to a the is ones that sense the Umpqua going us of where present. And the I

be first or -- the potential conversion it slated slated it up will what understand leading will I quarter of if And think talent it will for trigger think think a next most I year. closer in the be is is there which I customers to to the will of I year. form that of of end for disruption not -- is

with that. there's like that present month may opportunities time. some in And lead communication many So situation it customer at a a

say in that's -- see the going I'd I there's them towards of of summer the the when end think if we'll and year opportunities when most to be So is present.

Andrew Terrell

with heading a can And tax kind of it. it very XXXX? Don, XXXX? follow rate you then kind it maybe should of throughout helpful. as Okay. into similar That's I trajectory of kind And did appreciate help us walking out

Don Hinson

of It increased little reversal some bit QX a Sure. as of a in result provisioning.

bit. So quite a that impacted that

I be year. think XX% heading into more to going it's XX% to range the next probably in

Andrew Terrell

Okay. Great.

asked questions of All my and answered.

So questions. my thanks taking for

Don Hinson

Andrew. you, Thank

Operator

Clark Please Piper you Matthew question. next go the ahead. of Sandler, have

Matthew Clark

morning guys. Good you? How are Thanks.

Don Hinson

morning. Good

Matthew Clark

that months? of is Don, NIM. get mentioned Or you XX more get Maybe Was had just the nine -- XX-plus sort assuming there kind that is, deposit every using some or you beta guess re-prices not? starting you And to I the I'm the points with rate percent kind with a sensitivity estimate on what it? were basis just benefit point basis of that at trying within to three to of

Don Hinson

that don't low. see deposit to in I we're rate They're going -- first increases just rate rates. was for a think -- couple it No, the again not I'm -- -- this of much

$XX almost we everything only is that and again not million that of we of little have $XX the materially below Some have to have looking off liabilities the cost it's are even interest-earning loans repricing -- that the -- indices. floors. bit a that's million CDs that to But of material still that although floating price like according down deposits. -- We at assets are only only XX% floors are we of

So that's at. getting what I'm

Matthew Clark

ex-PPP, X.XX% And Thanks. reserve just your on I the was then at Okay. think day X.XX%. one

the stabilize? were What's in kind have I that I where coverage your guys for ratio some know left in back sense XXXX still mid-to-high or pre-CECL you X-marks. but could you of marks think pre-pandemic XXs.

Jeff Deuel

take Don, you to want that?

Don Hinson

percentage? allowance the think I

Matthew Clark

sense. makes Yes. That

Don Hinson

well I that through we'll losses allowance I'm sorry. the there's than where having uncertainty percentage again we up model because through off then having we And and keep Yes don't back if less. you get you if -- losses. and -- down based history more says your shouldn't think you below variance about of -- off then it for be without feel of maybe -- think based we are the I rest we you this even have less get for end the were if and and models before, periods probably if it's like losses think all

get there. uncertainty gaining just be there down certainly economic the on. and see we may take can the down to on I take on So long it depending will potential and what's How dependent growth going will losses

Matthew Clark

it. Got

Okay. That’s great. guys. Thanks

Don Hinson

Matt. Thanks,

Operator

line the on Please Tim Coffey go comes question from final Montgomery Thank Tim. ahead. of Our Scott. you, Janney

Tim Coffey

Good Thanks. morning Great. everybody.

Don Hinson

Good morning, Tim.

Tim Coffey

the or under now? kind -- Is given of on kind kind of it inflation getting likelihood get timing it assets? you happening sort XXXX that's down under [Indiscernible] is overhead wage what's rather that What The trending And unknown of nicely. right ratio, expense is -- a been event? X% of of in or the with

Jeff Deuel

to ask grab Don to I'm that. going

Don Hinson

the kind levels we of think talked expense I about themselves.

if some couple happens strong may probably of of So deposits. to of impacts need the that's uncertain of outflow now, because see for right year. going overhead X% that over little And deposit to get keep the assets, ratio this years. continued And impacts growth. the to strong such And a some we're growth which see last that And to ratio. expecting we asset seen we overhead below see that we've course

it because year little I to still I above we're X% a think two. of going being not best mentioned as be -- around growth the or strong. the about of maybe right thinking forecast asset now -- that's over So And I'm the what next my

Tim Coffey

sorry. Sure. last Sure. But two -- production good. some in the of the production was I'm loan Yes quarters

Don Hinson

right? loan loans. just growth the cash is It's -- putting that the your it's really growth again deposit taking So growth drives asset in just it and

That's So deposit to going that's it why really that. growth. what's drive on saying depends our I'm that

Tim Coffey

a quarters. been higher a has a as do prepayments you guess forecasting wasn't couple And I there into rush then last bit as think go big mean cycle, of I be of pre-payments XQ. Bryan, that? challenging. always about could It that Okay. we're is slowing given But Understood. ahead And rate of that to

Bryan McDonald

pre-pandemic values being And strong. really -- of very just every underlying quarter. whole are back or the it's by still at look really market mostly course was collateral. move also We're over year asset kind we driven we to and levels market if you sale And the still up sales sales the No either when business we is all strong. were of the it saw of XXXX, of up that

in rising lot side of be real And last some million. $XX saw you even So was pay-offs and pre-pays the unexpected rate which rates the of hundred other economy. a unless Northwest of advances with has be couple utilization quarter net been estate it or payments in right whether the interest in But quarter it the again companies. million a of softness wouldn't now, per and down

at stabilized level. bit up even on maybe at little at bit, I'm we're or not the just to quarters. feeling bottom a that like and Hopefully us quite that a would So in drag we've pretty low -- future least gone moved if say that a it's which help a zero that

Tim Coffey

Okay. Those are my questions. Thank you.

Jeff Deuel

Tim. Thanks,

Operator

so further I'll the We team. back hand to line questions have on the no

Jeff Deuel

there's support seeing we'll And quarter's in and Gemma. performance weeks. and Financial. your thank you no coming Thanks, the We call. If talking the many with of your look forward you Thank for more We time Heritage to sign questions interest then now. and up off wrap the your we'll you. ongoing in of