Heritage Financial Corp (HFWA) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Corporation conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded today, Thursday, April 30, 2009. I will now like to turn the conference over to our host, Mr. Brian Vance, please go ahead, sir.

Thank you, operator. First of all I would like to apologize to all out there for some technical difficulties this morning, but appreciate your attending and listen in to our first quarter annual, or first quarter conference call. Welcome to all of you that are listening live and anyone that may be also calling in and listening on a recorded basis later. Attending with me in the conference call this morning is Don Rhodes, our Board Chair, and Don Hinson, our Chief Financial Officer. Earnings release for our first quarter earnings went out yesterday morning before market opened. Hopefully you've had an opportunity to review those earnings, or that earnings statement and I will be referring and talking specifically about that particular earnings statement. Of course forward-looking statements apply. I will not read the entire forward-looking statement here except for just a couple of sentences. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations.

You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statement. So with that I will just get into sharing with you what -- a little bit about our first quarter earnings. First of all some highlights to our earnings. The ratio of our total capital risk weighted assets as of March 31, 2009 increased to 14.1% from 13.73% as of December 31, '08. Core deposits, and we are defining core deposits in this case as total deposits less all certificates of deposits, as if March 31, 2009 increased 9% for the quarter. That is not an annualized number, that was -- that's at 9% for the quarter. We believe this is a flight to safety opportunity, as we have one of the lowest cost deposit rate structures in our marketplace. Strong coverage ratio at the end of the quarter included an allowance for loan losses to total loans of 2.56% and an allowance for loan losses to performing loans of 150%. Strong liquidity positions as of the end of the quarter demonstrated by no borrowings and $92 million in cash and cash equivalents.

Net interest margin increased to 4.68% for the quarter ended and from 4.44% for the prior quarter ended March 31, '08 and from 4.67% for the link quarter ended December 31, 2008. Discussed earnings here just for a moment. We posted a first quarter loss of $594,000. Including the preferred stock dividends the first quarter loss applicable to common shareholders was $923,000 or $0.14 per share. Our total loan loss provision for Q1 was $5.250 million compared to a Q4 '08 provision of $4.6 million and a Q1 '08 provision of $360,000. Even though our charge-offs decreased from Q4 '08, we felt the substantially increased provision was necessary in view of increasing nonperforming assets. This allowed us to increase our allowance to 2.56% of total loans. I would like to point out a couple of, or actually several balance sheet items to you, which we believe are significant. First of all we believe we have one of the strongest overall balance sheets among our peers in the Pacific Northwest.

At quarter end we have no debt on our balance sheet, no Federal Home Loan Bank borrowings, no trust preferreds, no short-term/long-term debt. Simply, no debt at all. Net loans to deposit ratio at quarter end of 91%, an improvement from a 101% as of the end of the third quarter last year, a substantial improvement in just two quarters' time. Total loans decreased $21 million during the quarter. Commercial loans decreased $10 million due to paydowns of lines of credit, much of which were seasonal agricultural loan paydowns. Construction loans decreased $7 million due to loan payoffs and transfer of $2 million to OREO. Residential mortgages decreased $4 million due to loan prepayments or refinancing activities because of the low rate scenarios. We have total construction exposure of 15.7%., with only 8.6% represented in residential one to four family construction, including land development.

We have a core deposit ratio of 62% and that does not include any CD's, that's all transaction core deposits. We believe that to be a very strong number. During the quarter we increased core deposits by $44 million. During the quarter the Washington Public Deposit Protection Commission issued a resolution stating that by June 30, 2009, they require public deposits to be fully collateralized. The earnings release details the deposit mix shifts that occurred during -- occurred during -- due to management's success in reducing insured public deposits from $126 million at year-end to only $18 million at March 31st. As a result total public deposits decreased $28 million during Q1. Also during the quarter we purchased $34 million in broker deposits in terms from six to 18 months at a weighted average cost of 1.35% to offset the lose of the $28 million in public deposits. As of quarter end we held $73 million in overnight interest bearing funds at the Fed and the Federal Home Loan Bank.

We've begun to invest these excess funds to improve earnings. A little bit about net interest margin. We increased our net interest margin, as indicated earlier, to 4.68%. This is the fifth consecutive quarterly improvement in our net interest margin. As of 12/31 our net interest margin was the seventh best margin among 34 western banks that DA Davidson Company covers. We suspect our net interest margin position may even improve once Q1 data is in on all these 34 banks. We were able to improve our net interest margin over the fast -- past five quarters as a result of interest rate floors in most of our floating rate loans and our liquidity which allows us to selectively and conservatively price our deposits as opposed to being out in the market with the highest rates in town. Our depositors are aware that higher rates means higher risks and are willing to trade risk for a bit less yield.

A bit about non-interest expense. Our non-interest expense for Q1 increased due to the following factors -- the assessment from the Washington Public Deposit Protection Commission, as indicated earlier, in an amount of -- amounted to $239,000 due to uncollateralized public deposits of a failed bank in the State of Washington; cost and net losses in the amount of $127,000 associated with maintenance and disposable - disposal of other real estate owned; increased FDIC assessment rates resulting in an increased assessment in the amount of $108,000 from Q1 of '08; and other than temporary impairment charge in the amount of $175,000 related to securities obtained in the 2008 redemption in kind of the AMF Ultra Short mortgage fund. And we also had increased marketing expenses in the amount of $123,000 resulting primarily from costs associated with the checking account acquisition program, which has proven to be very successful.

Non-interest expense control has been a focus of ours and will continue to be, however, such items as expected increase FDIC assessments, OREO costs and losses, as well as potential future OTTI charges and public deposit assessments will make it difficult to maintain our goal of an efficiency ratio under 60%. A little bit about loan quality. Total nonperforming assets plus accruing loans over 90 days past due plus potential problem loans for the -- for Q4 were $49.2 million. And Q1 were $50.7 million, or an increase of only $1.5 million. Nonperforming loans increased $10 million due primarily to two builder relationships, one for $3.6 million and another for $5.6 million. Both of these land -- both of these loans are land development loans. The balance of our nonperforming loans are primarily C&I relationships with two single family loans.

I'm going to give you a number of numbers here and if you have a pencil and you want to just jot down a few things, I might suggest that you create three columns, Q3 '08, Q4 '08 and Q1 '09. And I'm going to share some numbers about provision and allowances in each one of these three consecutive quarters. Our loan loss provision for Q3 was $1.8 million, for Q4 was $4.6 million and for Q1 was $5.3 million. Our credit losses in each of those three consecutive quarters starting with Q3 was $376,000, Q4 was $1.8 million, and Q1 was $518,000. Our allowance, our total allowance for each of these quarters Q3 was $12.6 million, Q4 was $15.4 million, and Q1 was $20.2 million. So you can see a very nice increase to the allowance over these three linked quarters. The loan loss allowance for each of these three linked quarters was 1.56 in Q3, 1.91 in Q4 and 2.56 in Q1. A full hundred basis points increase to allowance.

For nonperforming loans, our total nonperforming loans in Q3 were $8.5 million, Q4 dropped to $5.4 million, and Q1 increased to $15.4 million. Our nonperforming percent -- our nonperforming loans to total loans percentage for each of the quarters was point 0.93 in Q3, 0.57 in Q4, and then 1.61 in Q1. Certainly a substantial increase in Q1. Our peer group median, and we used a 20 bank publicly traded group of banks in the Pacific Northwest, the median, the number for these 20 banks for nonperforming loans is in Q1 it was 3.4, Q4 was 4.8 and of course we don't have Q1 data, but I suspect that will be over 6% once it's reported. So even though our nonperforming loans have increased substantially, we are well under our peer group in this market. And then finally, our coverage ratios. Q1 coverage ratio was 152%, Q4 paid -- coverage ratio was 454%, and Q1 we were back down to 150%.

And, again, peer group mediums for these same coverage ratios was 46% in Q3 and 40% in Q4. Again we don't have Q1 numbers yet, but I suspect it will be less than that 40% number when finally reported, so our coverage ratios are one of the strongest coverage ratios in the Pacific Northwest. I also have some OREO data for you. At the end of Q4 our OREO totals were 2.0 million. We had 2.1 million additions in Q1 and we had 2.1 million in sales in Q1 and we ended with 2.0 million of OREO properties or balances at the end of March 31st. A breakdown of distribution of types of assets in our OREO categories, we ended the year with 6 homes, and 34 lots. We added 8 homes and 20 lots during the quarter. We sold 4 homes and 44 lots during the quarter. And we ended the quarter with 10 homes and 10 lots represented by the $2 million in OREO.

Of those ten homes -- since the end of the quarter, of those ten homes we have all ten homes are currently under contract and nine of the ten lots are currently under contract as well. Moving on to our liquidity numbers and again, as I've indicated, I believe we have one of the strongest liquidity positions in the northwest. It is something we focused on for the last, probably, year and a half. Total available liquidity sources is approximately $300 million. We have strong primary liquidity in -- in the -- the cash that I had indicated earlier, with $73 million in overnight cash and a loan deposit ratio of 91%. Our capital position. Our total risk based capital, as indicated earlier, is 14.1%, tangible common equity is 75 million or 8.0%, tangible book value per common share was $11.19 as of March 31st, and, as the press release indicated, we made the decision to suspend dividends to preserve and grow our capital.

For earnings, I will give you some core earnings for both quarter to quarter comparisons, as well as year to year comparisons, and this core earnings is based on pretax, pre -- I'm sorry, pretax, preprovision and preimpairment charges. And starting with year to -- year-over-year 2008, core earnings were $16.9 million -- did I say 2008, I'm sorry, 2007 core earnings were $16.9 million and 2008 core earnings were $18.7 million. So you can see a strong improvement to core earnings on a year over year basis. On a Q1 over -- a Q1 '08 to a Q1 '09 core earnings, again, pretax, preprovision and preimpairment, is 4.3 million in Q1 of '08 and 4.4 million in Q1of '09. Again indicating strong core earnings continuing in the Company. As many of you will remember, we participated in the Treasury's capital purchase program and sold $24 million in preferred securities to the Treasury in late November. Since November we have originated $78 million in new loans and renewed $151 million in existing loans.

We've also been active with the SBA program, with out reach to our community, presenting at ten separate events to 170 individuals. And since October 1, '08, we have originated 15 new SBA loans for a total of 16, I'm sorry, for a total of $6.5 million. Additionally, we just recently implemented a 30 year fixed rate loan special to assist our builders and qualified buyers choose from an inventory of completed homes currently financed by Heritage Bank. And we have three options, option one is a 20% down option at a rate of 3.875% with a fee of 1% and a term of 30 years. We have a second option, 10% down at a 4.5% rate, 1% fee, for 30 years. And a third option for zero down at 4.75%, fee of 1% and a term of 30 years. These programs are only for our own builders, standing inventory. We found, even though we don't have a lot of standing inventory, we found that our -- a correction, from a OREO perspective we don't have a lot of standing inventories, but our builders do have standing inventories, our performing builders that have found this project to be very positive and we have activity developing there.

And of course all of these loans are subject to our own underwriting, our own separate underwriting processes and these would be portfolio loans. A general outlook, as I wrap up here, for the balance of 2009 we expect our net interest margin to be flat to potentially a slight reduction, continue to grow liquidity but with more emphasis to investing excess funds. We expect modest loan growth. We believe we have an excellent chance to grow loans because of our strong liquidity and the strong perception in our marketplace as not only a survivor, but a bank that will be able to capitalize on future opportunities. We will likely continue our strong provisioning on a go forward basis. We see continuing weakness in all construction, single family construction sectors, and we are also seeing developing weaknesses in the C&I sectors. And due to an increase in FDIC premiums and OREO carrying costs, it may be difficult to maintain our level of core efficiency ratios. And I would like to close with the following points.

As I've indicated several times, we have one of the strongest liquidity positions of any bank in our market area. We are a well capitalized Company with risk weighted capital of 14.1%. We have strong, stable core earnings and a stable net interest margin. We have a core -- excuse me, a coverage ratio of 150%, which we believe will be one of the strongest coverage ratios of any bank in the Pacific Northwest. Our current single family construction exposure currently stands at a very low peer comparison of 8.6%. And I believe we've built in and are continuing to build one of the most fundamentally sound balance sheets in the Pacific Northwest to create safety for our customers and investors, as well as taking advantages of future opportunities. We believe we will emerge with a stronger Pacific Northwest presence and believe we will have opportunities as we move through this economic cycle.

And I'd like to announce that we will be presenting at the DA Davidson conference in Seattle next week on May 7th at 10:00 a.m. At that point that concludes my prepared remarks, operator, and we could open the conference call for any questions that they may have.

(Operator Instructions). And our first question comes from the line of Jeff Rulis with DA Davidson. Please go ahead.

Good morning.

Hi, Jeff, how are you?

Doing well. The two residential construction NPAs that were added, could you give any further color as to the location. Are those in Pierce County and maybe LTV's or any other information you could give on those?

I don't have specific information on the LTV's to those, Jeff. But both of those, I'm sorry, those nonperforming assets were in our market areas.

Okay. And then on the margin, did you have any impact from those loans that were added to nonaccrual, either on a dollar amount or basis point on margin.

There was a slight interest reversal, I'm going to say that it was a fairly minor, because to be honest with you, we are ahead of the power curve in that we are recognizing nonaccrual loans fairly early in the cycle. So there is not significant interest reversals that result. I'm going to guess we probably had interest reversals in the quarter probably less than $30,000.

Then just touching on the deposit growth has been really strong and I know that you spoke to this a little bit, but any impact -- do you think it's an impact from struggling banks in the region or is it your own sort of special programs going on. I guess how would you characterize the deposit growth on the core side?

Jeff, I think that's from both -- I think we are recognized in our marketplace as a bank that has a very strong balance sheet and I think there is some flight to safety activity going on. We had just incredible core deposit growth and as I've indicated, we've got a -- we've got a rate structure that's one of the lowest cost rate structures in the marketplace, so it's not a -- it's not a chasing yield activity from the depositors point of view. We have seen customers that do have concern about other banks in the area that are opening accounts with us. But I also think that we do an excellent job of our branch staff of -- of exceptional service. I know everybody says that. But that growth I'm giving you is -- is core deposit growth, transaction accounts. CDs is a -- is a, as we all know, is a rate driven product and transaction accounts is a service driven product and to growth transaction accounts you really have to have that -- the service and the product structure well developed and I believe we do. So I really think it's for both reasons that we've seen very nice deposit growth this last quarter.

Okay. And then on the TARP money, I guess any thoughts on your relative health of your bank is quite a bit better than some of your peers and I didn't know if you had any thoughts on paying that back any time soon or just going to go ahead and continue to use those funds?

Well, that's a interesting one. There is lots of information and opinions on TARP money, both positive and negative. As I've said about the TARP, we had the -- we had the privilege of making the decision to bring the preferred securities into our balance sheet from a position of strength. We are well capitalized, but we felt that having the additional safety net for our depositors and our shareholders was a -- was a good strategic move. I still believe that. We have obviously have the cash and the ability to repay that TARP today. I for the same reasons that we made the decision to bring the TARP into our balance sheet in November, are the same reasons why I believe that -- that it ought too stay there, is because of the uncertainty in the marketplace. We have not seen bottom, in my opinion, in this marketplace. And until we do with the certainties that are there, I think that safety net is -- is nice to have in place. I think at the time that we see the bottom of the market and we see it beginning to turn, then we will get serious about taking care of the preferred equities that we have.

Okay. Thank you.

Thank you for your questions, Jeff.

Thank you. And our next question comes from the line of Ross Haberman with Haberman Funds. Please go ahead.

Good morning, Brian, how are you?

I'm doing well, Ross, thank you.

I'm glad I got on the call I had a little trouble.

Yes, apologize for that.

You said you, in one of your statements for your expectation for the rest of '09 you said you expected it to prop -- possibly drop in the spread or margin. I'm curious, most banks who I'm talking to are dropping deposit rates like a rock. Are you telling us that you don't have a lot of floors in your loans and that's why margins could possibly shrink?

No, I do think -- I think we do have floors in a lot of our loans. I think that's been one of the reasons we have been able to increase our net interest margin over the consecutive linked five quarters. Ross, I think that we have managed our margin probably more aggressively than most of our peers. I think we were successful at lowering deposit costs long before any of our peers. Again, because of liquidity we didn't have to compete with (inaudible) high CD markets. So I think because we are probably a little ahead of the curve, we don't have a lot of room to continue to improve the cost of our deposit base.

And as a result of that I just think that any ongoing issues in the -- in the -- as we move through this year, whether it's interest reversal due to nonperforming assets or whatever, it's going to be difficult for us to improve that margin. I know I keep saying that and we've done it for five consecutive quarters and maybe I'm being too conservative, but I really do believe we've been ahead of the power curve and we've wrung out a lot of cost out of deposits that our competitors are probably doing today. And as a result, they may see a little more improvement. And as I said earlier, too, we have the seventh best net interest margin among all of the banks Davidson coverage -- covers, which I think substantiates my comments as well.

I guess Dav -- Davidson ought to cover some more companies then. (Laughter)

Well, I think, as you know, Ross, deposit generation is a local phenomenon and -- and I think that there are a number of banks in this market that have liquidity issues, which cause us to, whether we like it or not, to compete against some of those deposit rates. So we may not have the net interest margin some of our community bank brethren have across the nation, but from -- on a relative basis I think we are doing pretty well.

One, I'm glad you brought that up. If we see some of these struggling banks go away over the next couple of quarters, one, will you be bidding for them, and two, if they do go away do you see that as might be a break in terms of the competitive deposit environments and you will have a chance to lower your deposit rates?

Well, first question, will we be bidding on them. I think that's a -- that's a tough one to answer from the standpoint that -- that I think anybody that -- that makes any growth activity still early in the -- in the -- in this economic recession is taking some big risk. We just don't yet know how deep and how long this recession is going to be. I know there's discussions that maybe we are bottoming on a national basis. I think the Puget Sound market is going to lag six to nine months of the national markets, I hope I'm wrong on that. But I still think that we're in the early innings of this and to make decisions that would grow your balance shre -- sheet and shrink your capital is a very risky decision and I think everyone needs, including ourselves, needs to be -- be aware of that. As your second question, Ross, if there are other bank failures does that give us an opportunity to grow our business, our deposits and maybe even our margin a little bit, yes, I think that's a possibility. I think we've proven within the first quarter that we are capitalizing on those, at least the weaknesses of other organizations and hopefully we can continue to do that.

Thanks. I'll -- I'll give another person a shot. Thanks, again. Thanks, Ross, appreciate your questions.

Operator Instructions). And our next question comes from the line of Tim O'Brien with Sandler O'Neill. Please go ahead.

Good morning, Brian.

Hi, Tim, how are you?

Fine, thank you. I have two questions for you, but the first one with the cash, with the interest earning deposits that you put on your balance sheet and the increase in deposits are you guys earning a negative spread right now on that? And just keeping short-term money, avoiding securities purchases and looking to ploy that into loans, is that your strategy?

Well, as to the negative spread that's probably a true statement on a short-term basis. Let me talk about my strategies in that regard. I felt it was really critical that we created asset based liquidity as opposed to what most folks have today, which is liability based liquidity. And in creating the -- no, I got that backwards. Let me say liability or deposit liquidity as opposed to debt liquidity, my point there is is that we spent a lot of time building the cash liquidity with some negative spreads and -- because we just didn't know about the uncertainties in the marketplace.

And if you -- and if you take that cash and you invest it, you've -- you've got a variety of -- even if it's in treasuries, you've got price risk and if you have price risk then typically that's not liquid because you don't want to sell for a loss. So I felt it was better to have a little bit of negative spread in -- in building that cash liquidity just because I believe so strongly in -- in liquidity in these uncertain markets, so I think that was -- that was our primary decision. Now, we have built a very strong cash liquid position and as I indicated in my comments, we are beginning to invest that as I have more comfort with our overall liquidity positions.

You're not alone, actually, on taking negative spread in this quarter. So as far as outlook for investment, does that include securities? Do you see securities as attractive investments at this point at this juncture and what you're expecting coming on the pipe in the market.

Well, boy, attractive investments when you are getting 3% yields, you can't get too excited about it. But, yes, we are beginning to invest in securities, very conservative decisions in that regard. But we can't -- we can't afford to continue to get 25 basis points on some $70 million, we recognize the need to and we have implemented an investment strategy that we are investing a few million a week as we move forward just to start widening that spread a bit.

Okay. Last question, that special mortgage takeout loan program that you talked about and gave some rates and terms on.

Yes.

Excuse me. Are you guys, also -- what's your -- you must be offering a 30 year fixed rate product for portfolio also that's not the special that isn't tied to any construction loans that you made, is that true or?

No, we don't have any special. I mean we do, first of all -- .

Not special, just a normal -- what's your normal rate on a 30 year fixed rate loan, single family residential mortgage loan right now. Do you offer that?

We do. On a portfolio loan a single family, typically those are for bar -- our own customers and we are probably in the -- in the 6% range on those and we believe that that -- and we understand that's substantially above secondary rates in the marketplace, but on the other hand, these are typically for non-qualifying properties or a variety of things but we underwrite and we feel comfortable and -- and we are just not anxious to put 4% fixed rate stuff into the portfolio unless it's this special program to help our builders get rid of some of their inventory.

So you are willing to portfolio these loans, take some long-term risks potentially and some pain, given the alternative, I guess.

Well, I think so, Tim. I think we all understand that most single family fixed rate portfolio loans probably average life of seven years over the long haul, but on the other hand I think we do have a responsibility by accepting the CPP, the preferred securities, in lending that back out into our community and, yes, we are probably going to be underwater a little bit on a few of these products. I need to emphasize I don't think we are going to see a -- a -- a rush to using this product because we have to underwrite it. But, as I said, I think we have a responsibility of employing the CPP proceeds in -- into the community as well as helping our builders and even though we may give up a little bit in the short run, I think it's probably not a bad decision.

How many total properties conceivably could you originate mortgages for use -- under this special. How many houses are we talking about here? 100?

Oh, probably 40 houses that our active performing builders have that are completed or substantially complete today. And in this particular program that we announced it's got a sunset date of June 15th. So we may renew it after that. So we will just see how the success of the program goes.

Are you funding it a certain way to manage interest rate risk on the other side.

No, we are not.

Okay. Thanks, I will step back, appreciate it.

Appreciate the question, Tim, thank you.

Thank you. And our next question comes from the line of -- it is a follow-up question from the line of Ross Haberman, please go ahead.

Brian, I was wondering if you could breakout the profitability of your Central Valley operation. When was -- did that AG exposure help or really -- or help you and what your expectation is for this year in terms of their contribution.

Good question, Ross. We have not released in the past profitability for the, the separate profitability for the two subsidiaries, but I will make this comment. Central Valley Bank has performed very well in the last couple of years. They've -- they've posted some -- some record net profits. The AG sector has been very strong, especially last year. We certainly are seeing weakness in that sector today, as the commodity prices started to turn down late last year and I think the, no pun intended, but the bloom is off that particular sector in terms of the -- the performance. I think we are going to see probably some -- some difficulties over the next two years or a couple years, but I believe our Central Valley Bank management team, Mike Broadhead and his folks over there, are very seasoned, good AG lenders and I think they understand that the market's turned and I think we are preparing ourselves for that eventuality as well. But it has been a very strong performer.

And just one question related to the dividend. What kind of profitability level would you need to return to on a bottom-line to reinstate it or begin to reinstate a portion of it?

I'm going to be reluctant to -- to name a number, Ross. I think what I would -- what have said and what I'll continue to say is is that we need to achieve sustainable profitability levels before we will consider reinstating the dividend. We, as we always said, this is a decision that we look at on a quarterly basis. I think just because of the incredible uncertainties that are still existing in the marketplace for me to make predictions of certain levels or certain timeframes might be a bit irresponsible. I appreciate your question and I wish I could answer you, but because of those uncertainties it just makes it very difficult for me, Ross.

Okay, well, let's hope it's sooner than later and I'm sure everyone on your board agrees with me. Again, thanks again.

Thanks Ross.

Thank you and the next question comes from the line of Joe Stieven with Stieven Capital, please go ahead.

Hi, good morning.

Good morning.,

Very simple, most of my questions have been answered, but on loan pricing right now, could -- can you give us some thoughts when loans come up for renewal what type of a increase over, say, the previous renewal as far as pricing are you getting. Especially with a lot of the competition in your markets really sort of on the sidelines right now. Thanks.

It's -- it's difficult to give you any sort of definitive answer on renewals and in terms of what the rates, rate increase might be over the -- over the previous rate. Typically, we will have floors of 5%. In most of our floating rate deals it will be a prime plus spread with a floor of at least 5%. And I think that in the last probably 90 days or so, I think we have really focused internally on getting risk based pricing back into the -- into the -- into our loans. In some cases we've been successful and others there are still, I'll be very candid, I think people in the marketplace who don't get it and are not getting risk based pricing and there's some competitive issues that we just choose not to compete.

A lot of fixed rate stuff, let's say, on the commercial real estate side, fixed rate with five year reprice will be probably in the minimum of 7.5% and most all of it today is, as we are looking, at around 8%, which would be substantial increases if it's a renewal over existing rates or substantial increase over in terms of rates that we would have got in that same product let's say a year ago. That's one of the reasons why we've seen a little decline in our -- our loan balances. It wasn't because we wanted to decrease or increase our capital position, that was not the case. It's just that we believe that now is the time to do what bankers do best or what they -- what we should do best and that's to get risk based pricing in our loans. It's been tough to convince our competitors of that, but I think we -- we tend to and will continue to be a market leader in that regard. .

Okay. Thank you.

Thank you for the question.

Thank you and I'm showing there are no further questions in the queue. I turn it back over to you, Mr. Vance, for any closing comments.

Well, thank you, operator. I appreciate everyone tuning in today. Appreciate your questions and the opportunity to share with you about our Company and what we are doing. You may know that typically we have done just two earnings conference calls annually. I think with the uncertainties and the volatility in the markets it's probably appropriate that we begin doing this on a quarterly basis and to continue it and that's my intent to keep everyone as well informed of our Company as possible. And also would remind you if you would like to tune in our presentation at the DA Davidson conference will be webcast and complete with Power Point presentation. You can see a little bit more color on the Company and some of the things that I've been talking about today. So thank you again for your attendance today.

Thank you, sir. Ladies and gentlemen, that does conclude today's Heritage Financial Corporation conference call. Thank you for your participation.

You may now disconnect.