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Heritage Financial Corporation  (NASDAQ:HFWA)
Q2 2019 Earnings Call
Jul. 25, 20192:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Heritage Financial Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to President and CEO, Jeff Deuel. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Thank you, Ryan. Welcome to all who had called in and those who may listen later. This is Jeff Deuel, CEO of Heritage. Attending with me are Don Hinson, our CFO; and Bryan McDonald, our Chief Operating Officer. Our earnings press release went out this morning premarket. Hopefully you've had an opportunity to review it prior to the call, and please refer to the forward-looking statements in the press release.

We are pleased with our progress as we continue to build our franchise and generate attractive financial results for our shareholders. As you know, we've made significant investments to build our franchise in Seattle and Portland, and we are seeing the benefits of the two acquisitions we completed in 2018 as well as the teams we've hired in those markets.

Together, the Seattle and Portland markets represent significant opportunities for Heritage, and we believe we are well positioned to continue to execute. Despite significant loan production, our net loan growth continued to be a challenge due to elevated loan payoffs. On the bright side, the loan pipeline has grown nicely, and we had a strong origination month in June. We believe we are laying a good foundation, which will continue to produce attractive results for our company.

While we are experiencing strong competition for deposits in the second quarter, our loan-to-deposit ratio of 85.5% enabled us to carefully manage pricing competition and maximize our NIM. We continue to focus on protecting our core deposit franchise, which we view as one of our key strengths.

Don Hinson will now take a few minutes to cover our financial statement results, including color on our core operating metrics.

Don Hinson -- Executive Vice President and Chief Financial Officer

Thank you, Jeff. I'm going to start with a quick overview of earnings before heading into more detail on our balance sheet, credit quality, income statement and capital management. Our reported earnings per share for Q2 was $0.43, which is up from $0.35 in Q2 of last year but down from $0.45 in Q1 of this year. The decrease in earnings from Q1 was due mostly to a combination of lower balance sheet growth, higher provisioning for loan losses and higher noninterest expense.

Moving on to the balance sheet, total asset growth was muted in Q2 due mostly to a $46 million decrease in total deposits. A major reason for the decrease was due to brokered CDs that matured in Q2 and were not renewed. The impact of these maturities were partially offset by an increase of $38 million in non-brokered CDs. Our nonmaturity deposits decreased about $29 million in Q2 and are down about $122 million year-to-date. It's unusual for us to have an overall decrease in nonmaturity deposits through the first six months of the year. The main drivers appear to be a combination of customers seeking higher rate by migrating into higher-paying CDs, closure of two branches earlier this year and customer-specific events such as using cash for real estate purchases, debt payoffs and the sales of customer businesses where we ultimately lose the business account.

Loans grew approximately $22 million in Q2 and have increased about $63 million year-to-date. The annualized year-to-date growth rate is 2.5%. Bryan McDonald will further discuss loan production in a few minutes.

Regarding credit quality, we experienced marginal deterioration in many of our credit quality metrics in Q2 due to increases in nonaccrual loans, potential problem loans and charge-offs. But overall, we have maintained strong credit quality and do not have any significant concerns in our portfolio. In fact, we consider that much of the changes in our ratios are due to us correctly managing the portfolio.

Potential problem loans increased $20 million in Q2. This was mostly due to six commercial relationships, which totaled $23 million that were downgraded to special mention in order to better monitor these credits. Through the sale of properties, we have decreased OREO down to two properties totaling $1.2 million at the end of Q2. Although charge-offs increased in Q2, year-to-date charge-offs are still at only 5 basis points of average outstanding loans.

In addition, the ratio of our allowance for the losses to nonperforming loans still stands at a very healthy 188%. Further, our loan balances include $10 million of purchase accounting net fair value discounts, which may reduce the need of allowance for loan losses on those related purchased loans. Taken together with some of the net discount and the allowance loan losses of 125% -- sorry, 1.25% of total loans as of June 30.

The net interest margin remained fairly stable in Q2 decreasing only 1 basis point from Q1 levels. Loan portfolio yield was 5.28% in Q2, which is an increase of 5 basis points from the current quarter and the cost of total deposits was 37 basis points in Q2, which is a 4 basis point increase from Q1. Due to the shape of the yield curve, forecasted 2019 rates and competitive pricing pressures, we do expect continuing pressure on our net interest margin in 2019.

Noninterest expense increased by $1 million from the prior quarter. One reason for this quarter-over-quarter increase was the Q1 reversal of a 2018 year-end accrual relating to a write-off of a lease obligation of a former branch. This reversal lowered Q1 expenses by $240,000. Another reason for the increase was due to approximately $300,000 paid in signing bonuses and severance payments in Q2. Without these payments, we would have shown a decrease in compensation and benefits from Q1 levels. Finally, we recognized an increase of $203,000 OREO expense related mostly to the loss taken on the sale of the properties I previously mentioned.

And finally, moving on to capital management, our tangible common equity ratio increased to 10.5% from 10.2% at the prior quarter end. The increase was due to a combination of unrealized gains on investment securities and continued strong levels of profitability.

As a result of our strong capital position and earnings performance, we have increased our regular dividend by $0.01 to $0.19, which is a 5.6% increase from the prior quarter's dividend. We continue to monitor quarterly dividend levels and potential share repurchases, but also liked having the flexibility if and when a potential acquisition opportunity arises.

Bryan McDonald will now have an update on loan production.

Bryan D. McDonald -- Executive Vice President

Thanks, Don. I'm going to provide detail on our second quarter production results by business line, starting with our commercial lending group.

In the second quarter, our commercial teams closed a record $308 million in new loans, which is up 89% from the $153 million of new loans closed in the first quarter of 2019 and up 54% from the $200 million closed in the second quarter of 2018. New production during the quarter was centered in King County at $111 million, up from $57 million last quarter; Tacoma at $60 million, which is up from $23 million last quarter; and Portland at $56 million, which is up from $24 million last quarter.

Commercial payment loan pipelines ended the second quarter at $478 million, which is up 7% over the first quarter and up 42% since the beginning of the year. Largest pipeline concentrations were on our King County teams, which ended the quarter with a pipeline of $149 million; our greater Portland teams, which saw their pipeline increase 23% to $78 million from last quarter; and our greater Portland teams saw their pipelines increase another 20% to $90 million versus last quarter.

Gross loans increased only $22 million during the second quarter or a 2.4% annualized rate due to higher prepayment and payoff activity combined with a higher-than-average composition of construction loans included in the quarter's new loan production. Loan prepayment and payoffs during the quarter totaled $160 million versus $110 million in the first quarter. Payoff and prepayment activity in the second quarter was elevated by a higher level of business in real estate sales, customers using cash to pay off debt and clients paying off loans due to our active portfolio management efforts. The consumer production during the second quarter was $45 million, up from $40 million closed in the first quarter of 2019 due to a moderate increase in indirect lending.

Moving on to interest rates. Our second quarter interest rate for new commercial loans was 49 basis points lower, decreasing to 5.16% from 5.65% last quarter. In addition, the average second quarter rate for all new loans was 5.26%, dropping from 5.68% last quarter.

And finally, the mortgage department closed $30.6 million of new loans in the second quarter of 2019 to 64% booked in the portfolio and 36% sold in the secondary market. This compares to $22.6 million of new loans closed in the first quarter of 2019 and $38.1 million closed in the second quarter of 2018. The mortgage pipeline ended the quarter at $39 million, up from $29 million last quarter and down from $47 million in the second quarter of 2018. Just a reminder, we reduced the size of our mortgage platform during the first quarter.

I'll now turn the call back to Jeff.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks, Bryan. Some general observations. We continue to enjoy the economic vitality of the I-5 Corridor. Valuations appear to be stable for commercial real estate and single family. However, competition for loans and deposits continues to be heavy. As a result of the strong economic environment, we see customers selling real estate and businesses. However, the silver lining in these dynamics is that we are also seeing several longer-term problems getting resolved as well.

In spite of the positive economic environment in the region, we remain cautious about concentration levels. We are maintaining our nonowner-occupied CRE concentrations at about 250% of capital with construction at about 40% of capital. Both of these levels are similar to last quarter. Operating at these levels provides flexibility to take advantage of high-quality loan opportunities while still being able to maintain discipline focusing on loan quality and yield. We have strong teams in the metro markets and we will continue to execute to generate growth opportunities going forward. We continue to benefit from our balance sheet liquidity and the high-quality granularity of our deposit base along with our strong credit culture. While the cost of deposits has trended up, the overall costs were still relatively low. We continue to manage our capital position to support our planned organic growth as well as positioning the bank so we can respond to M&A opportunities when they present themselves. We believe we are well positioned for the future and the challenges facing our industry today.

That's the conclusion of our prepared comments. So, Ryan, we are ready to open up the call and now welcome any questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Jeff Rulis with D.A. Davidson. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Good morning, Jeff.

Jeffrey A. Rulis -- D.A. Davidson -- Analyst

Hey, good morning, Jeff. So, yeah, I just wanted to get into the expense item. It seemed like there's some transitory sort of items in there. If you could maybe talk about what kind of do you think normalizes and kind of a growth rate that's a good number.

Jeffrey J. Deuel -- Chief Executive Officer

Sure, Jeff. There were some transitory things in this last quarter, some were not. As I mentioned, we kind of had a lower expense in Q1 due to that one reversal. So again, going forward, I think it's the run rate probably more in between the Q1 and Q2 be closer to that number than it would be either one of Q1 or Q2.

Jeffrey A. Rulis -- D.A. Davidson -- Analyst

And then, thoughts on just managing it from there, I guess, modest growth. Is that safe to say or...

Don Hinson -- Executive Vice President and Chief Financial Officer

I think so. I don't expect a lot of growth to occur going forward over -- at least the rest of this year. We've kind of added -- we added the team already in Portland beginning of the year so I don't expect to have a lot of growth going forward, but there's always some with pay raises and stuff like that.

Jeffrey J. Deuel -- Chief Executive Officer

Yeah. JJeff, I would add, too, that if you look at the quarters compared to each other, we've done a pretty good job of staying on top of managing the expenses. And we're going to continue to do that obviously through the rest of the year. The only thing that could impact us would be maybe a surprise opportunity to maybe enhance our operation with another team, but we don't see that on the horizon right now.

Jeffrey A. Rulis -- D.A. Davidson -- Analyst

Got it. And then, on the margin that your dialogue that would be -- given rate cuts and yield curve kind of poised for some pressure. I guess relative to where you were 3 months ago, is that an accelerated pressure or you held firm pretty well this quarter? And just trying to see if that's -- in a rate cut environment, is that to a greater extent?

Don Hinson -- Executive Vice President and Chief Financial Officer

Yeah. Don again. I think that if we get the rate cuts that are expected at the end of this month and possibly even another one in September, I think that the margin will decrease more than it did this last quarter.

Jeffrey A. Rulis -- D.A. Davidson -- Analyst

Thanks.

Jeffrey J. Deuel -- Chief Executive Officer

Yeah, go ahead.

Operator

Our next question comes from the line of Luke Wooten with KBW. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Good morning, Luke.

Luke Wooten -- KBW -- Analyst

Good morning and congratulations, Jeff.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks.

Luke Wooten -- KBW -- Analyst

Just kind of wanted to -- and you touched on a little bit just a second ago just on lifting out any other teams. Do you see an increase kind of team grabs in some of your markets? Or are you kind of feeling maybe de novo might be the better way to go in Portland or how are you feeling about that?

Jeffrey J. Deuel -- Chief Executive Officer

I think we feel really good about the platforms that we have developed over the last 18 months with the 2 acquisitions and the teams that we brought on. And we're pretty well situated in the metro markets now with a pretty good sized group in Seattle and Bellevue as well as in Portland. So I think we're poised for growth with just the teams that we have in place. I think it's important to point out, too, that we have done some one-off enhancements to some of what you might call our non-metro markets, and we've strengthened those production teams as well. So that altogether, as we've said in the opening comments, positions us well to continue to execute on our plan to grow the organization and the footprint we have. If a team presented itself, we obviously would trend toward a team without -- over an acquisition to grow our organization. But right now, we don't see that on the horizon. And I think that that's just fine because we still have a lot of development to do with the footprint we have and particularly in the metro markets that we just got into.

Luke Wooten -- KBW -- Analyst

Okay. That's helpful. Ahanks, And then, just back on expenses. I think you guys had previously said you were looking at the overhead ratio excluding CDI amortization kind of decreasing on a year-over-year basis. Just wanted to see how you're looking at that going forward. And I know you'd briefly touched on expenses, just kind of want to see where you see that ratio shaking out toward the end of the year.

Don Hinson -- Executive Vice President and Chief Financial Officer

Luke, it's Don. I think we'll continue to see improvement. We'll see improvement in that. Part of the mitigating factors last quarter was the lack of asset growth, which is the denominator in that formula. So that kind of hurt overall in addition to some expense hikes just last quarter. So I expect overall the overhead ratio to improve as we get further into the year.

Luke Wooten -- KBW -- Analyst

Okay. That's helpful. And then just lastly, wanted to kind of get the updated guidance for the loan growth through the end of the year. You previously had 6% to 8%, and just wanted to see if there was an update for that going forward.

Jeffrey J. Deuel -- Chief Executive Officer

Yeah. Luke, it's -- historically, we've guided toward a range of 6% to 8%. If we go back and do the math on our last twi quarters and if we had more normalized payoffs, we estimate that we would have come out about 7% on an annualized basis. That seems to us to be the right place to be given the environment we're in with regards to the economy and the cycle where we are. I think that we would still guide to that same range, but with the caveat that if payoffs remained at historical high levels then it may be lower than that. I think the overarching theme here is that, that's the loan growth we would like to have, and it's not in our wheelhouse to try and exceed that unnecessarily because we don't feel like now is the time for us to stretch. And it's highly competitive out there right now, if it is, from a pricing standpoint but also from an underwriting standpoint, and we think sticking to our knitting and going for the high single digits is probably the right sweet spot for us.

Luke Wooten -- KBW -- Analyst

Okay. That's helpful. And could you -- don't mind if I just grab one more, just kind of on capital management going forward. I know you said that you're kind of feeling comfortable and -- with where you're at, but just any indication for repurchases or anything going forward with regards to capital?

Don Hinson -- Executive Vice President and Chief Financial Officer

I think we have a plan already in place that we have. We can repurchase -- still at 900,000 shares that we could repurchase within our current plan. And we are always open to that depending on where our stock is trading and the other opportunities that we might have and grow. So we're always monitoring that, and there's always a possibility we'll be doing some of that. We did repurchase just a few shares this last quarter, about 28,000 more, in that case, just to kind of keep our share count the same so -- but we do have a plan in place, and we'll use it as we feel we can and be opportunistic in that way.

Luke Wooten -- KBW -- Analyst

Ok, that's helpful. Thank you for taking my questions.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks, Luke.

Operator

Next question comes the line of Gordon McGuire with Stephens. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Good morning, Gordon.

Gordon McGuire -- Stephens -- Analyst

Good morning. Thanks for taking the question. Don, I just wanted to clarify your commentary on the NIM throughout the rest of the year. Was your expectation for continuing pressure with or even without rate hikes just based on the yield curve -- or rate cut, sorry?

Don Hinson -- Executive Vice President and Chief Financial Officer

Yeah. If we didn't have any rate cuts, I would say that we might have just a slight bit of pressure like we did this last quarter. Going forward, no. I think if we get some deposits -- so [let's go back]. If we didn't have a rate cut and we get some deposit growth, like I think we're -- I think deposits will start coming in because I think the competitive pressures will subside a little bit. I think that would help us maintain margin near where we're at, but maybe down slightly. I think that's going to -- with rate cuts because we are somewhat asset sensitive. I think that's going to increase the decline, I guess you might say, the pace of decline going forward over the next couple of quarters. And again, the market is certainly expecting a cut at the end of this month, and I think that we'll feel the impact of that.

Jeffrey J. Deuel -- Chief Executive Officer

Gordon, another consideration here is in the last quarter, we saw a pretty fierce competition for deposits from all the banks around us. But with the rate cuts on the horizon, we saw that tended to dissipate a little bit. And as you know, our strategy to maintain our deposit base was to exception price as we needed to in order to keep our customers. In this case, the competition has subsided a little bit so I don't think we're going to see as much pressure on the deposit side.

Gordon McGuire -- Stephens -- Analyst

Does that reduced competition give you room to go to your exception customers and talk them down to lower rates over time? I guess I'm trying to figure out maybe when you see costs -- probably cost peak and then maybe trend lower if we get a couple of cuts.

Jeffrey J. Deuel -- Chief Executive Officer

I think the situation we have is our cost of deposits was never very high to begin with, so they haven't come down. There's room for that to happen through what you just brought up with the exception price customers, but I don't think that's something that we can do right away. That's more like we put the exception in place for a period of time, and we'll go back to it when we can.

Don Hinson -- Executive Vice President and Chief Financial Officer

I expect that we might see a little bit of increase in cost deposits in Q3, but then leveling out in Q4. We're just -- it's more of the impact of the increases we did in Q2 that might kind of pull over into the impact on Q3. But we're not seeing a lot of, again, increases going forward, so it's more that again what has taken place in Q2 that's been impacting us right now.

Gordon McGuire -- Stephens -- Analyst

Got it. And maybe just -- can you provide some color or mechanics around the repricing of the loan portfolio?

Don Hinson -- Executive Vice President and Chief Financial Officer

Sure. We have about -- I think it's about 25% tied to prime of our -- well, at least 16% tied to prime of our overall portfolio and another 8% tied to LIBOR, so about 25% tied to I would call floating rate loans.

Gordon McGuire -- Stephens -- Analyst

And Jeff, I think I heard you earlier saying -- making some commentary around preferring team lift-outs at this point over an acquisition. Did I hear that right? And maybe you could provide just an update on where your head's at on M&A.

Jeffrey J. Deuel -- Chief Executive Officer

Yeah. Yeah. Thanks for letting me clarify. I think that historically, it has been our preference to do a lift-out over an acquisition because it comes without the integration risk and substantially less cost. But we are always interested in both lift-outs and M&A along the I-5 Corridor. We would be interested in acquiring many of the potential targets that we see along the I-5.

Gordon McGuire -- Stephens -- Analyst

Thank you. I'll step out.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks, Gordon.

Operator

Next question comes from the line of Matthew Clark with Piper Jaffray. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Good Morning, Matt.

Matthew T. Clark -- Piper Jaffray -- Analyst

Good morning. Just peeking through some of the other assets on the balance sheet portfolio, can you remind us of a duration of that book and the types of things you might be buying of late? Just trying to get a sense for the incremental pressure there on that yield.

Don Hinson -- Executive Vice President and Chief Financial Officer

I think that as we looked at it about -- of the security portfolio, about $100 million is tied to one-month LIBOR and another $35 million tied to three months. So within a three-month timeframe, we have $125 million for repricing in that way. So that's -- hope it gives you an idea on that. The duration itself is under four, so we've been keeping it fairly short.

Matthew T. Clark -- Piper Jaffray -- Analyst

And will that portfolio grow or is it going to continue to shrink here for the time being?

Don Hinson -- Executive Vice President and Chief Financial Officer

I think it really all depends on our overall balance sheet growth. Deposits come back. We may grow up some. It will depend on the combination of loan and deposit growth. We really don't have a strategy for growing it on its own. It's more of a supplement to the rest of our balance sheet strategies.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay, great. And then, just on new loan business and given what the five-year has done last few months, do you happen to have the weighted average rate on new business? And I know we're going through this repricing phenomenon with the Fed cut. But just also wanted to get a better piece of it, if we could.

Bryan D. McDonald -- Executive Vice President

Yeah, Matt. It's Bryan. So on our commercial business for new production in Q2, that was 5.16%. And for all loans, it was 5.26% during the second quarter.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay. Thank you.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks, Matt.

Operator

Next question comes from the line of Tim O'Brien with Sandler O'Neill. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Hey, Tim.

Tim O'Brien -- Sandler O'Neill -- Analyst

Hey, guys. Thanks. Don, question for you on other expenses. That was up about $0.5 million from $2.5 million to $3 million. I didn't catch if you'd mentioned that or do you have any color on that, what's behind that?

Don Hinson -- Executive Vice President and Chief Financial Officer

Well, again, $240,000 of that was a reversal of the year-end accrual that occurred in Q1. So it lowered Q1 expenses by $240,000. That's one reason of the $500,000. That's the half of it. I think the rest of it is just more overall operating expenses, whether it's travel. We have a bigger team in Portland than we did. I think there's a little more traveling going on than was before and various other items but nothing big quite that one accrual reversal.

Tim O'Brien -- Sandler O'Neill -- Analyst

And what was kind of the onetime incentive comp expense that you guys booked this quarter? How much was that?

Don Hinson -- Executive Vice President and Chief Financial Officer

Well, between sign-on bonuses and severance payments, it was 350 this quarter.

Tim O'Brien -- Sandler O'Neill -- Analyst

And that was in the comp line item and the salary and benefit line items?

Don Hinson -- Executive Vice President and Chief Financial Officer

Correct. And we always have some, but that was unusually high. We have signing bonus. It's different. So that was an unusually high amount.

Tim O'Brien -- Sandler O'Neill -- Analyst

And then surprised somebody else didn't ask this question, but it's getting asked on most calls. Hypothetical 25 basis point cut. What's the expected impact on the NIM, mid-single digits?

Don Hinson -- Executive Vice President and Chief Financial Officer

It could be. I think a lot will depend on what happens on the deposit side. I think I'm looking at more of as we get the cut open in July and in September. We're obviously -- loan yields are going to probably come down. By Q4, it looks like come down maybe as much as 5 basis points based off the current portfolio and the present portfolio might come down 10. So -- but the overall NIM impact will depend on growth and noninterest-bearing deposits and if we're able to hold those down.

Tim O'Brien -- Sandler O'Neill -- Analyst

So two cuts in 3Q hypothetically, 5 bps impact potentially hypothetically on NIM in 4Q -- I mean on loan yields and then 10 bps on investments, that's kind of how you're seeing it?

Don Hinson -- Executive Vice President and Chief Financial Officer

Correct. But that's an estimate based off a lot of different factors, but yes.

Tim O'Brien -- Sandler O'Neill -- Analyst

Absolutely. There are a lot of moving parts to all of this, I know, the funding side included. So that's it for me. Thanks for answering my questions.

Jeffrey J. Deuel -- Chief Executive Officer

Thanks, Tim.

Operator

[Operator Instructions] The next question comes from the line of Tim Coffey with Janney. Please go ahead.

Jeffrey J. Deuel -- Chief Executive Officer

Good morning, Tim.

Tim Coffey -- Janney Montgomery Scott LLC -- Analyst

Hey, morning, everybody. I actually want to follow up on the deposit costs during the quarter. Obviously, there was a lot of moving parts in that deposit book, and I'm wondering, of the deposit cost increases that you saw quarter-over-quarter, how much of that was related to moving different balances and different categories versus kind of the exception pricing?

Don Hinson -- Executive Vice President and Chief Financial Officer

Good question, Tim. I think that the migration of non-maturity deposits to CDs had a big impact on that. So a lot of those rates, CD rates are up in the 2s due to some specials that we had going on to be competitive with other banks in the area. So a lot of those CD rates that came in were probably close to one-year CDs at 2% where the nonmaturity deposit rates are a lot less. So that's a big piece of it. We also -- there were some exception pricing going on and other types of accounts, but I think that it's probably a combination there. I'm not sure I can break out how much of each of it is.

Tim Coffey -- Janney Montgomery Scott LLC -- Analyst

Of course not. Yeah. I'm just trying to get at what the potential for the improvement in deposit cost could be coming in the 3Q if it could actually end up happening sooner in the quarter versus later. If, by chance, exception pricing had to -- tend to be a bigger driver of the deposit increases.

Don Hinson -- Executive Vice President and Chief Financial Officer

Again, we're not seeing much exception pricing much to this quarter as far as trends go. So I think it's going to flatten. But in Q2, we did see quite -- both in Q1 and Q2, we did see quite a bit of that.

Tim Coffey -- Janney Montgomery Scott LLC -- Analyst

Yeah, I guess I was referring to the lack of exception pricing, a bigger benefit.

Don Hinson -- Executive Vice President and Chief Financial Officer

I think it will be a benefit. Again, it's hard to put either a basis point or a dollar amount on that at this point.

Tim Coffey -- Janney Montgomery Scott LLC -- Analyst

Sure, OK understood. The rest of my questions have been asked. Thank you.

Jeffrey J. Deuel -- Chief Executive Officer

Thank you.

Operator

At this time, we have no further questions in queue.

Jeffrey J. Deuel -- Chief Executive Officer

If there's no more questions, then we're ready to wrap up this quarter's earnings call. And we thank you all for your time, your support, your interest in our ongoing performance as an organization. We look forward to seeing several of you over the coming weeks, and thank you and goodbye.

Operator

And ladies and gentlemen, today's conference was recorded, and it's available for replay starting at 1:00 p.m. Pacific today through August 8, 2019 at midnight. You may access the AT&T replay system by dialing 1800-475-6701 and entering the access code 469443. International participants may dial 320-365-3844. Those numbers again, 1800-475-6701, international is 320-365-3844, access code is 469443. That does conclude today's conference. I want to thank you for your participation. You may now disconnect.

Duration: 33 minutes

Call participants:

Jeffrey J. Deuel -- Chief Executive Officer

Don Hinson -- Executive Vice President and Chief Financial Officer

Bryan D. McDonald -- Executive Vice President

Jeffrey A. Rulis -- D.A. Davidson -- Analyst

Luke Wooten -- KBW -- Analyst

Gordon McGuire -- Stephens -- Analyst

Matthew T. Clark -- Piper Jaffray -- Analyst

Tim O'Brien -- Sandler O'Neill -- Analyst

Tim Coffey -- Janney Montgomery Scott LLC -- Analyst

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