Heritage Financial Corporation (NASDAQ:HFWA) Q3 2023 Earnings Call Transcript

Donald Hinson: Yes, we had a little bit of benefit from things happened just kind of miscellaneous things for the quarter that kind of helped us out. I would say kind of – we are managing FTE levels to such that I think probably our run rate would have been like 41.5% type in that range. Now I will also say that we are looking at various initiatives on the expense side and from, our expense management initiatives. So even though that’s probably a decent run rate, we are – we could potentially have higher expenses in a short – like, possibly in Q4 or Q1 of next year, as we review things like contracts, renegotiate contracts or even we could even exit contracts and take some hits upfront, that we feel is going to – we’re not getting value and we’re going to have savings going forward. So, there’s a chance that we may see higher expenses in Q4. But if we do, we’ll have benefits from it in future quarters.

Matthew Clark: Okay. Great. And then last one from me, just on office CRE. Can you give us the magnitude or quantify the reserve associated with that portfolio at this stage? I know criticized were down a little bit this quarter to $21 million. But just the reserve you have against that portfolio. And then if you’re seeing any differences or any weakness, I should say, in kind of the suburban office segment, considering we heard someone last night call out two nonperformers in suburban office in Southern California, totally different market, obviously?

Anthony Chalfant: Yes, Matthew, this is Tony. I can take the first part and I think Don has the actual reserve number against the office portfolio. But we haven’t seen a lot of weakness in our suburban office market. We continue to watch it closely, but nothing’s really materialize from that standpoint. So not really much to add to my comments in that area.

Donald Hinson: Yes. I’ll just follow-up. We don’t have any individually evaluated loans on the office side. But I think the percentage – overall percentage is 1.1%, the percentage on the office loans is around 1.56%, I believe, percent of the allowance. So as you – so I guess you can calculate the number. We have the numbers. I don’t have the exact number, but we do disclose how many office loans we have, so you can kind of figure that out.

Matthew Clark: Yes, got it. Okay. Thank you.

Jeffrey Deuel: Thanks, Matt.

Operator: We now have Jeff Rulis of D.A. Davidson.

Jeff Rulis: Thanks. Good morning.

Jeffrey Deuel: Good morning.

Jeff Rulis: Jeff, maybe a question for you. Just checking in on capital. You’ve got CET1 close to 13%, total capital over 14%. You rattled through the TCE number. I guess, are there some in-house comfortability levels that you’ve exceeded at this point? And just – I mean, frankly, those levels haven’t changed much over the last year. Just trying to get a feel for – if you want to inch those higher or can we think about – you want to be proactive when the time is right kind of thing with M&A? Thanks.

Jeffrey Deuel: Thanks, Jeff. Don, I think that’s a good question for you.

Donald Hinson: Okay. Yes, as far as our capital levels, we are comfortable with our capital levels. Obviously, with the rate environment, the TCE ratio is probably lower than are ideal, but then we’ll – assuming rates stay the same or don’t go up much, we will see that come back into capital over a certain time period. And then as far as – we’re using our capital for – we obviously are looking to grow. We may do some trades like we mentioned on the loss trade was a smaller one. We could do a bigger one, but that wouldn’t impact TCE so much, it would impact regulatory capital. But we’re comfortable with that. I don’t think we necessarily have a large overabundance of capital. We did a few buybacks again in Q3, about $150 million, I think, or $150,000, sorry, of shares repurchased. We could continue to pick at that also. We don’t have any plans to do any large-scale buybacks at this point.