Heritage Financial Corporation (NASDAQ:HFWA) Q2 2020 Earnings Conference Call - Final Transcript

Jul 23, 2020 • 02:00 pm ET

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Heritage Financial Corporation (NASDAQ:HFWA) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from the line of David Feaster with Raymond James. Your line is open sir.

Analyst
David Feaster

Good morning guys and good afternoon. Hey, how is it going?

Executive
Jeffrey J. Deuel

Good.

Analyst
David Feaster

I just wanted to start on deferrals. I appreciate the detail in the slide deck. And I guess early read on re-deferral rates is that there are pretty low. I guess, as we go forward, do you think that this is a sustainable rate that it's going to be this low or would you expect the re-deferral rates to kind of accelerate or just any thoughts on that topic that you might have?

Executive
Jeffrey J. Deuel

Well, I think that you saw this in our deck that we're at 24 second COVID modifications. 21 of which are tied to commercial. It is -- we are early in the process. This is just about the time that the first round of modifications would be coming back, if they were going to ask for a second round. We're -- and Tony, you might want to add to this, but I think in our most recent conversations David, we're thinking maybe 25% are probably going to come back, but we do believe it will be much lower than what we had the first time around. Tony, anything you might want to add to that?

Executive
Tony Chalfant

Yes. Thanks, Jeff. I would say that we're expecting the restaurant and hotel portfolios to have a pretty high percentage of second round deferral requests. But as we mentioned earlier in the conversation, we do think that the doctor and dentist portfolio will be much, much lower. So it's hard to put a percentage on what we think the second round deferrals will be, but we do expect them to be much, much lower than we had in the first round.

Analyst
David Feaster

That makes sense. And I guess, kind of, on the flip side of this, I got -- to provision -- the reserve build was a lot larger than you're expecting. I guess, I got to assume that most of the heavy lifting is already been done. Just how do you think about reserve build in light of this more modest pace of re-deferrals. I guess, I mean, pretty modest additional reserve builds in the second half of the year, assuming that there are going to be some risk rating downgrades with re-deferrals and potential migration?

Executive
Jeffrey J. Deuel

David, Don might want to jump in on this too. But if you recall, I know you recall this that the first time we did our CECL analysis in the first quarter was probably the worst time possible, but at that time we also indicated that we thought, the build this quarter was going to be significantly higher. We said that more than once during the quarter and I think that based on what we see in our portfolio right now, we feel like we're in a good spot. We also were saying that we felt that given the view that we have now which