Heritage Financial Corp (HFWA) 2022 Q3 法說會逐字稿

Good morning. Thank you for attending today's Heritage Financial Corporation Q3 2022 Earnings Call. My name is Bethany, I will be the moderator for today's call. (Operator Instructions)

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

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

Our earnings release went out this morning pre-market, and hopefully, you've had an opportunity to review it prior to the call. We have also posted an updated third quarter investor presentation on the Investor Relations portion of our corporate website. We will reference the presentation during the call. Please refer to the forward-looking statements in the press release.

We are very pleased to report a strong third quarter. We reported good organic loan growth, which was aided by lower payoffs, higher line utilization and a pool of purchase residential mortgage loans. We're pleased with the positive trend we have seen in the number of new commitments and new loan closings across the footprint in spite of strong competition. NIM is improving with the deployment of cash into loans, higher rates of the Fed and growing the investment portfolio. Don and our Treasurer have done a nice job of carefully managing our investment portfolio over the past couple of years, which has limited the negative impacts of AOCI.

We continue to carefully manage expenses, although we are experiencing the impacts of inflation. You may recall, we guided to a range of [38 to 39] for the quarter, and we finished slightly above that range. Notably, our long-standing focus on credit quality and actively managing our loan portfolio continues to play out well for us. Staying focused on our conservative risk profile has enabled us to continue to report improving credit trends and provide a good foundation facing into a potential recession.

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

Thank you, Jeff. As Jeff mentioned, overall financial performance was very positive in Q3, and I'll be reviewing some of the main drivers of our performance. As I walk through our financial results, unless otherwise noted, all of the prior period comparisons will be with the second quarter of 2022.

Starting with net interest income, there was an increase of $9.2 million or 18.5% due mostly to higher net interest margin. The net interest margin increased 53 basis points to 3.57% for Q3. This was due mostly to improved yields on earning assets, the leveraging of cash into loans and investments and continued low-cost deposits. We had another strong quarter of loan growth with balances increasing $127 million or 3.3%. In addition, yields on the loan portfolio were 4.51% in Q3, which was 21 basis points higher than Q2. Bryan McDonald will have an update on loan production in a few minutes.

In addition, investments increased $326 million due to the additional purchases of securities in Q3 to take advantage of improved market yields. Due to these purchases and the overall rate environment, the yield on the investment portfolio increased to 2.63% compared to 2.15% in the prior quarter.

We experienced a decrease of $92 million of deposits during Q3. Most of this decrease occurred late in the quarter, as shown by the fact that the average balance was down only $17 million from the prior quarter. Much of this decrease was due to rate sensitive customers seeking higher-yielding investments. We have increased our deposit rates, and we are working with our customers on rates to maintain relationships. As a result, we expect to experience an increase in the cost of deposits over the next few quarters.

All of our regulatory capital ratios were strongly above well-capitalized thresholds and we continue to have a very strong liquidity position. Our TC ratio is at 7.6%, down from 7.9% at the end of Q2. This decrease was due to the continued decline in the fair value marks on the investment portfolio, which impacts the AOCI portion of equity.

As of the end of Q3, AOCI had a 140-basis point impact on the TCE ratio. You can refer to Page 30 of the investor presentation for more specifics on capital and liquidity.

Noninterest expense increased $3.4 million to $39.1 million in Q3. This increase was due mostly to an increase in compensation expense. And this was due to a combination of inflationary pressures on internal pay scales, a full quarter impact of the new teams hired in Q2, an increase in FTE due to improved success in filling open positions and increased incentive compensation accruals.

Even though we continue to show strong credit quality metrics, including reduction in nonaccrual loans, and realizing net recoveries for the quarter, we recognized a provision for credit losses of $1.9 million during Q3 due mostly to increases in loan balances as well as the lengthening of the duration of certain loan segments, which impacts the allowance calculation.

I will now pass the call to Tony, who will go into detail on these credit quality metrics.

Thank you, Don. As Don stated, credit quality remained strong. During the quarter, we saw positive trends across the portfolio with notable declines in nonperforming assets and criticized loans. As of September 30, nonaccrual loans totaled $6.2 million and we do not hold any OREO. This represents 0.16% of total loans and 0.09% of total assets.

During the third quarter, nonaccrual loans declined by $4.2 million or 40%. We've now reduced nonaccrual loans by $17.5 million or 74% from year-end 2021. The significant improvement during the third quarter was primarily due to our ability to return one owner-occupied commercial real estate loan with an outstanding balance of $3.4 million back to accrual status. This borrower had been significantly impacted by COVID and their improved financial performance warranted an upgrade. There were no loans moved to nonaccrual status during the quarter.

Our delinquent loans, which we define as those over 30 days past due and still accruing remains very low at $3 million or 0.08% of total loans. Page 22 of the investor presentation highlights the success we've had in reducing nonperforming assets.

Criticized loans, those risk-rated special mention and substandard declined by approximately 9% or $16 million during the third quarter and are now down 18% from year-end 2021. As of September 30, criticized loans totaled $151 million or 3.8% of total loans. At year-end 2020, criticized loans were $291 million, and our current level represents a decrease of 48% from what we consider to be the high point of this credit cycle.

As expected, we saw a meaningful improvement in our hotel loans during the quarter. While this portfolio still represents 30% of our criticized loans, this is down from the 36% at the end of the last quarter. It's important to note that much of the improvement in our substandard loan totals declining by $28 million during the quarter was due to the upgrade of 2 hotel loans especially mentioned based on improved operating performance. If the improvement in the travel industry continues, we would expect to see more upgrades in this portfolio over the next 2 quarters.

Criticized loan totals are now very close to where we were at the end of 2019. We consider that to be a normalized level before the effects of the pandemic began to impact the loan portfolio. For more details on our criticized loans, please refer to Page 23 in the investor presentation.

During the third quarter, we experienced very low charge-offs of $138,000, all from our consumer portfolio. These consumer loans -- consumer losses were low when compared to historical norms and were primarily auto loans, small and secured lines of credit and credit cards. They were more than offset by recoveries of $612,000, leading to a net recovery of $474,000 for the quarter. A significant portion of the recoveries in the quarter came from a successful long-term workout strategies for several commercial loans.

Year-to-date, we are in a net recovery position of $980,000. Over the last 4 quarters combined, we have net recoveries of $514,000. This is unusually strong performance even when compared to our historic experience, which has generally been lower than our peers. As a comparison, our average annual net charge-offs for the 3-year period 2018 through 2020 was approximately $2.9 million.

While our markets continue to perform well, we are mindful of the broader macroeconomic concerns and the potential recessionary environment. We continue to use a disciplined approach in our credit decisions and despite competitive pressures have not changed our underwriting guidelines. Our loan portfolio remains well diversified by both product type and geography and is granular in nature. We believe we are well positioned to perform well in whatever type of economic environment materializes in the future.

I'll now turn the call over to Bryan, who will have an update on loan production.

Thanks, Tony. I'm going to provide detail on our third quarter loan production results, starting with our commercial lending group. For the quarter, our commercial teams closed $281 million in new loan commitments, similar to the $284 million closed last quarter and the $271 million closed in the third quarter of 2021. Please refer to Page 18 in the third quarter investor presentation for additional detail on new originated loans over the past 5 quarters.

The commercial loan pipeline ended the third quarter at $604 million, up from $537 million last quarter and up from $547 million at the end of the third quarter of 2021. Although the pipeline increased during the quarter, we are seeing more variability in new opportunities, including some customers opting to delay capital spending. This combined with the rapidly rising rate environment is likely to cause the pipeline to soften from here.

Organic loan growth during the quarter was augmented with the purchase of residential mortgage pools and negatively impacted by the runoff of both SBA PPP balances and the indirect loan portfolio, a business line we discontinued in 2020. Excluding the impact of SBA PPP indirect loan balance declines and the residential mortgage pool purchases provides a good measurement of our core organic loan growth rate. Using this measurement, loans increased to $118 million during the quarter or a 12% annualized rate.

Similar to the first and second quarter, we benefited from higher utilization rates and lower loan prepayment and payoffs as compared to 2021, all of which is detailed on Slides 19 and 20 of the investor deck.

Consumer loan production, the majority of which are home equity lines of credit, was $30 million during the quarter which is down from $43 million last quarter and equivalent to the $30 million of production in the third quarter of 2021.

Moving to interest rates. Our average third quarter interest rate for new commercial loans was 4.87%, which is 76 basis points higher than the 4.11% average for last quarter. In addition, the average third quarter rate for all new loans was 4.89%, up 84 basis points from 4.05% last quarter. Although the marketplace continues to be very competitive, we are seeing a portion of the rate increases translate into higher quoted interest rates on new loans.

The mortgage department closed $26 million of new loans in the third quarter of 2022 compared to $40 million closed in the second quarter of 2022 and $44 million in the third quarter of 2021. The mortgage pipeline ended the quarter at $18 million versus $20 million in Q2 and $27 million in the third quarter of 2021. Portfolio loans continue to make up 84% of the year-to-date volume versus 54% in 2021. With interest rates rising, we anticipate volumes will continue at the relatively low levels we saw in the third quarter.

I'll now turn the call back to Jeff.

Thank you, Bryan. As I mentioned earlier, we're pleased with our performance in the third quarter and year-to-date. We're seeing solid organic production across the bank with deals coming from existing customers and new high-quality prospects. Additionally, we are seeing multiple new business opportunities coming from the new teams in the southern part of our footprint.

Based on our current pipeline, we expect Q4 loan production to be similar to Q3. We will continue to focus on expense control, although we are experiencing inflationary pressures around compensation. We have also continued to focus on our technology strategy, which is designed to support more efficient operations, a more consistent customer experience and positions us well to pivot as bank technology continues to evolve and we continue to grow.

We are also prepared to pursue acquisitions in our 3-state region when we see the right opportunities for us. In the meantime, we'll continue to focus on opportunities to add new teams and individual producers throughout the footprint.

As Don mentioned earlier, our capital levels and our robust liquidity provides us with a strong foundation to address challenges and to take advantage of opportunities.

That is the conclusion of our prepared comments. So Bethany, we're ready to open up the call to questions that people may have.

(Operator Instructions) Our first question is from the line of Eric Spector with Raymond James.

I just want to say congrats on a great quarter. Just wondering if you could provide an update on the HeritageONE development and what's on the docket to be had in near term? Any updates on when you will be able to drive more efficiencies and then just any potential to white label it as well would be great.

Thanks, Eric. We have -- the technology that we've reported on up to this point is comprised of 3 pieces. There's the CRM, there's the commercial loan origination piece and then there's the treasury management piece. We're scheduled to have the first version of the commercial loan origination system completed by the end of March 2023. The CRM is supposed to be done first version June and then treasury management, which is the more complicated of the 3, although they're all pretty complicated, will be done by September.

And we are getting some advantages now because we've been using -- we've started to use all 3 of them. The commercial loan origination system is the one that's probably most mature and is used broadly throughout the organization. The others are being rolled out, and we're working on developing a better way of showing all of you our metrics as to how and what it's doing for us. But just intuitively, we can see some of the benefits already in the form of being able to do more with the same people is how I like to put it.

The white label piece of it, interesting you brought that up. I know we've talked about that with a few folks, the idea of potentially selling our platform to other banks is something that we spent a lot of time on this year, scoping it out and assessing it. And we recently met with the technology committee of the Board and collectively made the decision to put that idea on the shelf because we have a lot of liquidity on our balance sheet. We have a lot of new people that we need to focus on, and we need to get these platforms to done is how I put it before we potentially get fancy trying to sell. So it's something that we might consider later in the future.

But for now, we're going to focus inwardly and getting ourselves organized around the technology before we do anything beyond that.

Okay. That makes a lot of sense. And then just kind of going off that, you guys put a lot of effort into upgrading your tech stack, obviously. And just kind of a broader shift away from branches, I'm just curious how you think about branch consolidations going forward over the next few years?

Well, we did what we would call a lot last year. And I think going forward, our branches are still very important to us. What you saw was consolidation within markets as opposed to us wanting to leave markets completely. I think what you'll see is us continuing to refine through in consolidation, but I think it will be more limited number each year compared to last year.

Okay. And then one last question. Just curious how M&A conversations are going? Any increased appetite given how well your currency has held up relative to peers?

Yes. We're happy to see our currency hold up. We are having the same conversations that we've had for the last couple of years. I don't see any immediate opportunities for us. I think it's safe to say the folks that we know and like and would be interested in are aware of our interest. We just try not to overstay our welcome. And I think that also the current environment with the potential for marks on investment portfolios makes it more complicated too. So it might be a good thing that we don't have anything immediate right now. But we're ready to pursue opportunities when they make sense for us.

In the meantime, we still have work to do to continue the welcome of the teams down south, and we think there's going to be additional disruption that might benefit us and we'd like to be prepared and ready for that, too. So if anything, maybe late in '23, but maybe even later than that.

Okay. That makes a lot of sense. That's it for me. Congrats again on a great quarter.

Our next question comes from the line of Jeff Rulis with D.A. Davidson.

Thanks. Good morning. Following up on the expense side. I think you spoke to it a couple of times a little bit on the high side of expectations and understandable. I think you had a slug of hires there that kind of -- for a full quarter and some inflation pressures. I guess going forward, absent finding a sizable amount of new hires, just looking to see how that moderates both on inflationary pressures, but also investments that you're making? Just trying to get a sense of that expense figure?

Yes. And I know Don needs to chime in on this, Jeff. But we went through a rather robust reworking of all of our job grades and salary ranges earlier this year, and that was all deployed in July. We also did subsequent actions on the frontline employees to kind of rightsize some of the compensation there that was done just a few weeks ago. So some of those things are obviously not going to -- we don't think they're going to repeat themselves. I think we're in a good spot now.

And then we get the added bonus that we're performing well enough that we're having to increase our accrual for incentive, which always is a catch '22, I guess. But I think Don has a kind of a directional number for you that might help.

Jeff, I think looking forward, as we again continue to face, we might say, inflationary pressures. Again, like I said, we've had some success filling some open positions, which earlier in the year around was guiding a certain range we're actually falling below that. That was because we had expected to fill positions earlier and we weren't and now we are. So I think our run rate will be more in the $39 million to $40 million range per quarter going forward.

Of course, that could change for -- we're always looking to have production if we find producers or teams or those type of things that could obviously switch. But we're not looking to actually create new positions in the back room, but -- so the FTE -- any fluctuation in that will be to filling open positions.

Okay. And Don, while I've got you there. Just on the tax rate, it's sort of has risen over the course of the year, but you're kind of midpointing at kind of mid 17.5%. Is that still a pretty good rate to kind of think about?

Yes. Yes. So what I'd use the year-to-date rate on that because, again, it gets adjusted for each quarter. So in a quarter, it might be higher because, again, our income was up and therefore, the tax-exempt items have less of an impact. So I think the 17.5% is probably a good number.

Got it. Okay. And Jeff, lastly, sort of big picture so bear with me. Just a regional question. I'm interested in your view of kind of the climate in the Northwest relative to national trends. I think a region that's taken its (inaudible) early in the pandemic, but a number of Northwest banks are putting up pretty solid growth, and you've got a bunch of above-average deposit franchises. Just interested in your view of relative strengths that you see in the region that you think are sustainable?

Yes. Well, I think the biggest thing is we've got a pretty diverse economic landscape with a variety of companies that are here. I think that things are pretty good right now, Jeff. As you said, we went through a pretty bleak time when we were in lockdown. But there's a vibrancy here that's continued under the surface, and I think is kind of coming back in many ways.

We do have customers that are struggling with supply chain issues and more expensive personnel. But generally, I think everyone is feeling pretty good about things.

We always say that we can feel good about what we can see 6 months out. Things could shift. We're hearing a little bit more noise about vacancy rates in the core metro areas, particularly articles around Bellevue because Microsoft is deploying their plan to move back to their renovated space in Redmond along with some new buildings they've built. So that's probably going to have a little bit of an impact. Housing here is actually good. Houses, they're not selling in hours, maybe they're selling in weeks and maybe not with the premiums that they were selling for before. But there's still a lot of activity there as well even with mortgage rates up.

So I think we're feeling pretty good about where we sit. And I think there's a certain level of vibrancy here that's hanging on. We'll see as things change maybe in the next 6 months. Tony, anything you want to add to that?

No, Jeff, I think you did a good job of covering it. I would say we still feel like things are pretty stable in our loan portfolio. As I mentioned, the hotels we're finally getting to a place where we felt like we could upgrade it. But if you look at the rest of the portfolio, it felt like when we did a deep dive into that portfolio at the end of the third quarter, it felt pretty stable to where we were at the end of the second quarter.

Okay. Appreciate the thought. Thanks.

Does that get you what you were looking for, Jeff?

Yes. Yes. No. I mean it's broad strokes, but sort of consistent with, I think, what we're seeing and specifically with your bank. So I appreciate the insight.

Our next question comes from the line of Matthew Clark with Piper Sandler.

This is Nate Race on for Matthew. Congrats on the great quarter, and I appreciate you taking the questions. First, I was hoping to -- was hoping to get some perspective in terms of some of the recent hires that you guys made over the summer in terms of how you expect those individuals to kind of impact your loan and deposit growth rate into next year? And just in terms of the timing of when they can bring over the relationships that they had at their prior institutions?

Bryan, why don't you take that one?

Sure. Sure. So Nate, when we modeled it originally, just as a reminder, we were looking at about a 3-year breakeven on that. And modeling around what would be our kind of typical production numbers, it was 7 kind of lending-oriented salespeople and then 9 deposit-oriented salespeople. So far, they're ahead of where we had hoped to be. But of course, it's early, again, kind of looking at that 3-year time horizon.

I would point you to Page 10 of the investor deck, at the bottom, there's 2 segments on that slide. One is the Seattle MSA loans and deposits. And then the bottom one is the Portland MSA for loans and deposits. And that will be the best spot to watch as we go quarter-to-quarter in terms of the actual growth in loans and deposits. We did see a big jump in deposits from a relative standpoint down there in the market and really good loan growth. A lot of that was more broad-based than the new teams that those teams, just as a reminder, started at the end of -- near the end of the second quarter.

But nonetheless, we're in general seeing really nice growth out of that market and continue to produce this slide. So you and others can watch what for the results are.

Got it. That's very helpful. And can you kind of speak to just the sensitivity of the deposit relationships that these hires are bringing over relative to, obviously, the pristine deposit beta that you guys have exhibited so far this cycle?

Yes. The deposit base is very similar to what we have targeted as a long-term strategy, it's relationship-oriented, core banking relationships that are highly service oriented in terms of what the clients are looking for. So in terms of a match for Heritage, it's really good. It does take time to transition relationships. But again, the folks we hired had really strong relationships and have and we believe we'll continue to get opportunities with their prior client base, I'll say as well as new clients in the market. And we've seen a lot of that already just with a sales -- a group of salespeople -- a larger group of salespeople without a client base. Of course, they're very active out calling in the market and winning a lot of other opportunities as well.

So in terms of the mix, it's a really good match for Heritage long-term deposit strategy. So we're very pleased with what we're seeing so far.

Okay. Great. And maybe just one last question for Don on the margin outlook going forward. I would imagine the margin expansion can continue to accelerate from here to some degree as the recent Fed rate hikes and expected hike later this year works its way through loan yields and so forth. And with you guys perhaps not seen as much upward deposit cost pressure as others. So Don, just any thoughts on just how the margin trajects into the fourth quarter and to early 2023 as well?

Sure. I can -- I see that we're going to continue to have margin expansion, but not to the extent that we did this last quarter. We're probably not going to see over 50 basis points increase in margin quarter-over-quarter again. But I do see expansion. Obviously, I think our -- we've been able to keep our cost of deposits down. I think the betas will start kicking in. We could see betas for the remaining part of the cycle for deposits to be 20% or 30% kind of in that range probably. Even if we did that over the next 6 months as far as the rate hikes expected, that would still leave our overall betas lower in prior cycles, which was like 15% to 20%. So it leaves probably 10% to 15% overall. But we'll start seeing an increase.

But the yields, like you say, we're -- the floating rate assets that we have, the repricing of loans and investments that's really going to -- with these rates the way they are, is really going to help us continue to expand the margin.

Okay. Great. I appreciate you guys taking the questions and for all the color. Congrats again on a great quarter.

Our next question comes from the line of Eleanor Hagan with KBW.

Congrats on the quarter.

Eleanor, thanks for joining the call. What can we do for you today?

So kind of turning back to the -- jumping back about the teams you added in the last quarter. Could you kind of talk about sort of the types of teams you brought on and what specialties they have?

We can do that. Bryan, do you want to take that one?

Yes, sure. They're very traditional commercial teams on the lending side. The portfolios were C&I and owner-occupied real estate, primarily under our structure. They also have the ability to do some amount of nonowner or investor real estate lending. But in terms of the type of relationships they banked previously, it's a really strong match to what we do here at Heritage and coming from a -- an organization with a really similar approach to credit as Heritage.

So both for, say, relationships they've done work with previously as well as new opportunities that they're finding in the markets. There's a really close tie between what these folks have done in the past and what they're doing here at Heritage. So that's the lending side.

On the deposit side, very similar. We have some deposit sales officers here at Heritage that pre-dated the new teams that we picked up back in 2017, again a sales officer on the deposit side, that's the equivalent of a commercial banker on the loan side in terms of experience and seniority.

And again, the target client is one that has a high value for service. It's the operating relationships. And then along with that, those deposit sales teams, we also added a full complement of servicing teams, which is part of the model to have kind of a one-stop shop for sales onboarding, servicing, either doing it directly or helping that client base manage in the bank.

So again, extensions of what we're currently doing with some additional augments on the servicing side, which we think will play out well for us as we go through the year.

Got it. That's helpful. And then jumping on a little bit thinking about loan growth. You guys still have a decent amount of flexibility. How are you thinking about or planning on funding loan growth on the go forward?

Bryan, do you want to keep going with that?

Yes. So we have had a really strong focus on deposit sales. We didn't take the foot off the gas at all even in the pandemic as we really saw deposits grow, but didn't have the associated loan growth at the time. And that's one of the reasons we find ourselves in the strong liquidity position that we have today, and we're continuing to have a strong outbound focus on deposits.

Don talked a little bit about deposit pricing, and we're continuing to work with customers to first maintain relationships, but we're also looking to maintain balances within reason. There are some other providers in our market that are paying some higher prices. And so we're having to evaluate that on a customer-by-customer basis. But certainly keeping relationships and keeping as much of the additional deposits that maybe they don't need for core operations which, of course, those are most sensitive to price.

So you'll see us continue to put a very heavy weighting on deposit, deposit growth and look to fund the loans with deposit growth. It's been a little -- we did see a pullback during the quarter. Don, I think the number was net about a little over $90 million and if you dig a little deeper into that, there was about $26 million of it that was associated in some way with public or municipal funds. So some of our municipalities have the ability to sweep those funds to a state pool that's investing in securities or bonds that pay a higher rate.

So I think that's the piece of it that is a little hard to tell how that's going to play out as we have additional rate hikes, which is usually when we're getting more feedback from our customers relative to the rate. So it's something that we're watching closely and really active dialogue with the customers on. But underneath the rate piece of it, we're continuing to add a lot of new clients.

Bryan, do you want to add a little bit on loan growth too?

Yes, sure. So we did have a good quarter again on loan growth. And I would just direct everybody to Slide 20 in the deck. It's the best way to get a good view of what's happening at the bottom -- the top section there shows a change in loans. And we're having really similar gross production to what we've had in the prior periods. The biggest swing is really on the pre-payments and payoffs where those average more like $200,000 a quarter in last year, 2021 and some prior periods.

You can see on this slide, the pre-pays were $72 million in Q3 and the payoffs were $55 million. So $127 million rather than maybe a couple of hundred million we were seeing last year. And then also on the net payments and advances, you can see in Q3, we had $55 million of increases -- net increases where in 2021, we were having moderate declines, for example, in Q4, we had a $31 million decline.

So real similar production, numbers and then, of course, a change in the payoff pre-pays. There's also a slide. And Jeff, maybe you can remind me of the page that shows our construction commitment?

Yes. 19.

19. That's also kind of interesting. We're at $542 million of commitments. Again, this is the bottom of Slide 19 in the investor deck. And if you go back to pre-pandemic at the end of 19, it was $580 million. So this is also helpful to that loan growth because we bottomed out through 2021. And now, of course, this is a source of growth rather than decline.

So we're in a good position there and continue -- have continued to build total commitments this year, again, almost back to where we were in '19, not quite yet.

And also note the $289 million is unfunded commitments, which is loan originations that will come over time.

Thank you. There are no additional questions waiting at this time. I would like to pass the conference back to Jeff Deuel for any closing remarks.

Thanks, Bethany. If there's no more questions, we'll wrap up this quarter's earnings call. We thank you for your time, your support and your interest in our ongoing performance, and we look forward to talking with many of you in the coming weeks.

Thank you. Bye.

There will be a replay available 1 hour after the conclusion of the call. To access the replay, please dial 1 866-813-9403 and enter the access code 989637.

That concludes the Heritage Financial Corporation Q3 2022 earnings call. I hope you all enjoy the rest of your day. You may now disconnect your lines.