Heritage Financial (NASDAQ:HFWA) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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The full earnings call is available at https://registrations.events/direct/Q4I5378922
Summary
Heritage Financial Corporation reported a net interest margin increase to 3.99% in Q2, primarily due to improved yields on the investment portfolio and decreased deposit costs.
Total loan balances increased by $26 million, driven by higher loan originations despite elevated prepayments. The yield on the loan portfolio slightly decreased to 5.72% due to interest recovery on nonaccrual loans in Q1.
Total deposits decreased by $210 million due to seasonal tax payments and the withdrawal of short-term funds by a large depositor. Brokered CDs decreased by $48.5 million.
The company completed a small loss trade of securities, resulting in a pretax loss of $217,000 but reinvested into higher-yielding assets.
Noninterest expenses increased due to merger-related costs, which are expected to remain elevated in Q3 before decreasing significantly in Q4.
Credit quality remains strong, with nonaccrual loans at 0.27% of total loans and low levels of net charge-offs reported.
The integration with Kitsap Bank is on track, with system conversions scheduled for late September, leading to temporarily higher expenses.
Heritage Financial anticipates mid-single-digit annualized loan growth in the upcoming quarters and expects deposit growth to align with this.
Management indicated that future net interest margin growth will be moderate, driven by asset repricing and a stable deposit cost environment.
The company repurchased 372,000 shares for $10 million and has a remaining authorization for further buybacks, contingent on market conditions.
Full Transcript
Kate, Operator
Thank you for standing by. My name is Kate and I will be your conference operator today. At this time I would like to welcome everyone to the Heritage Financial Corp 2026 Q2 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Brian McDonald, President and CEO. Please go ahead.
Bryan McDonald, President and Chief Executive Officer
Thank you, Kate. Welcome and good morning to everyone who called in or those who may listen later. This is Brian McDonald, CEO of Heritage Financial Corp. Attending with me are Don Hinson, Chief Financial Officer, and Tony Chalfant, Chief Credit Officer. Our second quarter earnings release went out this morning pre-market and hopefully you have had the opportunity to review it prior to the call. In addition to the earnings release, we have also posted an updated second quarter investor presentation on the investor relations portion of our corporate website which includes more detail on our deposits, loan portfolio, liquidity, and credit quality.
We will reference this presentation during the call. As a reminder, during this call we may make forward-looking statements which are subject to economic and other factors. Important factors that could cause our actual results to differ materially from those indicated in the forward-looking statements are disclosed within the earnings release and the investor presentation. A couple items to highlight as we look forward: the integration with Kitsap Bank is progressing as planned.
We are converting systems late September and will be carrying higher expenses until after the conversion. John Hinson will provide additional color on our estimated expense levels post conversion in a few minutes. The second quarter net interest margin increased 3 basis points to 3.99%, or 8 basis points if you adjust out the interest recovery that contributed to a higher margin in the first quarter. We expect the upward trajectory to continue but at a more moderate pace, primarily driven by new loans and repricing within the existing loan portfolio.
We’ll now move to Don who will take a few minutes to cover our financial results.
Don Hinson, Chief Financial Officer
Thank you, Brian. I will be reviewing some of the main drivers of our performance for Q2 as I walk through our financial results. Unless otherwise noted, all the prior period comparisons will be with the first quarter of 2026. Starting with the balance sheet, total loan balances increased $26 million in the second quarter. Loan originations increased in Q2, but elevated prepayments offset much of this higher production. Q2 yields on the loan portfolio were 5.72%, which was 1 basis point lower than Q1.
This slight decrease was due to the recovery of interest on nonaccrual loans in Q1, which positively impacted loan yield by 6 basis points for that quarter. Brian McDonald will have an update on loan production and loan rates in a few minutes. Total deposits decreased $210 million in Q2 due to the seasonal decline that occurred in April related to tax payments, and a $67 million decrease from a single deposit relationship who had deposited the funds on a short-term basis in Q1 and withdrew the funds in Q2.
In addition, brokered CDs decreased by $48.5 million during the quarter as borrowing rates were more attractive than brokered CD rates during the quarter. The cost of interest-bearing deposits decreased to 1.67% from 1.71% in the prior quarter. This decrease was due mostly to having a full quarter of the impact of the merger with Olympic Bancorp compared to just two months in the prior quarter. Investment balances decreased $36 million from the prior quarter due mostly to prepayments and maturities.
During the quarter we executed a small loss trade in which we sold $38 million of securities at a pretax loss of $217,000 and reinvested the proceeds into higher yielding securities. The yield on the investment portfolio increased 11 basis points due mostly to having a full quarter impact of acquiring the Olympic portfolio at current market yields. Moving on to the income statement, most categories increased from the prior quarter due to the merger as Q2 was the first full quarter of combined operations.
I will cover a few areas of note. In addition to the impact of increased average earning assets due to the merger, net interest income also benefited from an increase in the net interest margin. The net interest margin increased to 3.99% from 3.96% in the prior quarter and from 3.51% in the second quarter of 2025. The increase was due primarily to the increase in yields on the investment portfolio and a decrease in the cost of deposits. The previously mentioned recovery of interest on nonaccrual loans in the first quarter had a 5 basis point impact on the margin performance for that quarter which muted net interest margin growth quarter over quarter.
We recognized a reversal provision for credit losses in the amount of $921,000 in Q2. This reversal was due primarily to adjusting the allowance on loans from 1.06% at the end of Q1 to 1.03% at the end of Q2. This decrease in the allowance percentage was due to factors such as the decrease in weighted average life on loans and a change in the portfolio mix. In addition, net charge-offs remain at very low levels. Tony will have additional information on credit quality metrics in a few moments.
In addition to the first full quarter of combined operations, the increase in the noninterest expense was also due to merger-related costs of $7.5 million in Q2 compared to $5.2 million in Q1. Due to the fact that the systems conversion for Olympic is scheduled for late Q3, we expect elevated expense levels until Q4 based on our current forecast of staffing levels and merger-related costs. We are remaining consistent with our guidance from last quarter in that we’re expecting quarterly noninterest expense levels to be in the $64 to $65 million range in Q3 before decreasing to a range of $56 to $57 million in Q4.
And finally, moving on to capital, all of our regulatory capital ratios remain comfortably above well-capitalized thresholds and our TCA ratio was 9.7% at the end of Q2 compared to 9.6% in the prior quarter. During Q2 we repurchased 372,000 shares of common stock totaling $10 million. We will continue to consider stock buybacks depending on market conditions and other capital priorities. We still have 424,000 shares available for repurchase under the current repurchase plan as of the end of Q2.
I will now pass the call to Tony who will have an update on our credit quality.
Tony Chalfant, Chief Credit Officer
Thank you, Don. I’m pleased to report that credit quality remains strong and stable through the first half of the year. Nonaccrual loans totaled $15.5 million at quarter end, increasing by a modest $500,000 during the quarter. This represents 0.27% of total loans and compares to 0.26% at the end of the first quarter and 0.44% at the end of 2025. Within the quarter, we downgraded two related C&I loans to nonaccrual due to their delinquency status.
Both loans were fully repaid prior to quarter end. Within our nonaccrual loan portfolio we have $4.2 million in government guarantees. Due to the stability of our nonaccrual loan totals, the ratio of nonperforming assets to total assets was consistent with the prior quarter at 0.19%. We continue to hold a single-family residence as OREO with a book balance of $755,000. This house is currently listed for sale and we’ve seen strong interest. We expect it to sell and close during the third quarter.
This is the first OREO property we’ve held since 2020. Criticized loans, those rated special mention or worse, moved modestly higher during the quarter by $5.5 million. As a percentage of total loans, criticized loans were stable at 4% versus the 3.9% that we experienced at both year-end 2025 and the end of the prior quarter. When looking at the more severe substandard category, we continue to see improvement during the quarter. Substandard loans to total loans declined to 1.8% at quarter end versus 2.4% at year-end 2025 and 2.1% at the end of the first quarter.
Most of the $15.9 million decline during the second quarter came from payoffs or paydowns on three separate C&I relationships. Our ratio of total non-owner occupied CRE loans to total loans remained stable during the quarter at just under 300% versus 301% at the end of the first quarter. As a reminder, the increase in the first quarter was due to the inclusion of the Olympic portfolio and the fair value accounting for the acquisition. Specifically, the lower combined capital level from the fair value marks resulted in a higher total CRE ratio.
We expect the ratio to continue moving down to historical levels over time. During the quarter, total charge-offs remained low at $269,000. The losses were partially offset by $35,000 in recoveries, leading to net charge-offs of $234,000 for the quarter. Net charge-offs through the first six months of the year were $786,000. On an annualized basis, this represents 0.03% of total loans and is consistent with our performance for the full year 2025.
Page 18 in the investor presentation illustrates how our proactive management of problem loans has led to low levels of loan losses over the past seven plus years. We are pleased with the stability in our credit metrics through the first half of the year. While the challenges in the economy have led to some pressure on certain segments of our C&I portfolio, the risk has been manageable. This is reflected in our continued low levels of nonaccrual loans and net loan losses.
I’ll now turn the call over to Brian for an update on our production.
Bryan McDonald, President and Chief Executive Officer
Thanks, Tony. I’m going to provide details on our second quarter production results starting with our commercial lending group for the quarter. Our commercial teams closed $339 million in new loan commitments, up from $166 million last quarter and up from $248 million closed in the second quarter of 2025. Please refer to page 12 in the Investor Presentation for additional detail on new originated loans over the past five quarters. The commercial loan pipeline ended the second quarter at $628 million, in line with the $631 million reported last quarter and up from the $473 million at the end of the second quarter of 2025.
Loan balances increased $26 million during the quarter, a relatively modest level considering loan closings were up 104% compared to last quarter. The growth was limited due to a couple of factors. Loan prepayments and payoffs increased to $152 million during the quarter versus $119 million in the first quarter, and the mix in the quarter included a higher level of construction loans where balances will increase over time. Please see slide 13 in the Investor Presentation which shows construction utilization rates down 4.1% versus last quarter.
Based on the current pipeline, we expect our annualized loan growth rate to be in the mid-single digit range for the next couple of quarters. Deposits decreased $210 million during the quarter. A second quarter decline in deposits is typical of our seasonality due to tax payments, although the 2026 decline was higher than last year due to a $67 million decline related to non-operating funds in one commercial customer’s account, which Don mentioned a few minutes ago, and a $48.5 million decline in brokered CDs.
Adjusting for these two factors, deposits were down 1.3% in the quarter compared to 1% during the second quarter of 2025. Moving on to deposit production and pipeline, average deposit balances on new deposit accounts opened during the quarter are estimated at $62 million versus $33 million last quarter, and the deposit pipeline ended the quarter at $78 million versus $102 million at the end of the first quarter. Moving to interest rates, our average second quarter interest rate for new commercial loans was 6.44%, which is up 36 basis points from the 6.08% average in the first quarter.
In addition, the second quarter rate for all new loans was 6.40%, up 24 basis points from 6.16% last quarter. In closing, we continue to see a tailwind from asset repricing benefiting our margin and believe we are well positioned to navigate what is ahead and to take advantage of the various opportunities to continue to grow the bank. With that said, Kate, we can now open the line for questions from callers.
Kate, Operator
At this time I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Matthew Clark with Piper Sandler. Your line is open.
Matthew Clark, Analyst at Piper Sandler
Good morning. Wanted to clarify the expense guide. The 65 million sounds like it includes merger charges. Can you just quantify the merger charges you expect in 3Q and in 4Q to get to that, so we can have a kind of a core run rate?
Don Hinson, Chief Financial Officer
Yeah, I think when I mentioned that the Q4 being in the $56 to $57 million range, that would be your run rate there going forward. So most of our merger expenses will be done in Q3. You know, there may be just small minor things left over for Q4, but nothing material.
Matthew Clark, Analyst at Piper Sandler
And how much is in the 65 for 3Q?
Don Hinson, Chief Financial Officer
Say it again. The 65.
Matthew Clark, Analyst at Piper Sandler
How much in merger charges? How much in merger charges do you have in the 3Q guide of 65 million?
Don Hinson, Chief Financial Officer
About 6. Well, I think it’s very similar to what it was probably in Q2. Right. So I’m guessing we’ve got another $6 million there. And then of course we have just the systems that are by merger costs. We talk about things like contract cancellation fees, you know, severance payments, those type of things. It doesn’t include things like ongoing contracts that will cease those expenses. So the combination, why it goes down so much, is the combination of, you know, the merger-related expenses going down as well as the contract costs or the FTE costs going down in Q4.
Matthew Clark, Analyst at Piper Sandler
Got it. Okay. And then on the borrowing side of things, FHLB up to, I think, 166 million at the end of the quarter. Looks like they all mature in the third quarter. How should we think about FHLB borrowings when we forecast?
Don Hinson, Chief Financial Officer
Yeah, it’s pretty much all, you know, they all mature within the first two weeks of July. Right. So it’s just basically overnight, or we might go out a few weeks at a time if we see a rate that we like as needed, but it’s just as needed for liquidity purposes. In this case, we obviously saw some outflows of deposits in Q2, and we let brokered CDs run off of $48 million. So those two things combined caused us to have some borrowings. If we get some nice deposit growth in Q3, as we normally do, I would expect those borrowing balances to decrease.
Matthew Clark, Analyst at Piper Sandler
Yep, got it. Okay. And then just on deposit costs down nicely this quarter, want to get your outlook there just with assuming the Fed’s on hold for now and, you know, given the competitive environment.
Don Hinson, Chief Financial Officer
Well, I think we’ve hit the bottom. Our spot rate for interest-bearing deposits was 1.64% at the end of the quarter. And so I think we probably hit bottom on that. I think there’s a lot more competition for deposits. The rates are going up, even in the short term. Obviously the Fed hasn’t raised rates yet, but CD rates are starting to increase—the competition on those. We’re starting to see more pressure on even some of the other rates. So I think that we will see some gradual increases in cost of interest-bearing deposits from here on.
I think on the other side, I think we’ll still get the increases on the yield on loans that will help us to continue to improve margin over time, but I think we’re going to see some pressure on deposits.
Matthew Clark, Analyst at Piper Sandler
Got it. Thank you.
Kate, Operator
Your next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open.
Jeff Rulis, Analyst at D.A. Davidson
Thanks. Morning. Sorry to circle back on the expense side. I guess to get from 65 to 57, 3Q versus 4Q, Don, I think you said 6 million is on merger costs and then maybe are we thinking 2 million in cost saves to get to the run rate? Is that right? And then I guess would you expect cost saves to be complete as of 4Q, or is there any tail into ’27?
Don Hinson, Chief Financial Officer
I know that’s further out, but very, very little. Not enough to really give you guidance on.
Jeff Rulis, Analyst at D.A. Davidson
Yeah, got it. Appreciate that. On the loan growth mid-single digit for the remainder of the year, does that assume a similar level of prepayment?
Bryan McDonald, President and Chief Executive Officer
It does. Jeff, this is Bryan. A little higher last quarter and nothing unusual there, although we are seeing more customers selling businesses, which often involves sale of the collateral for the loans, that sort of thing. So we saw an uptick in that type of activity, and then in the portfolio coming across from Kitsap, and just better visibility, you know, after close, you know, to the construction loans that were coming up and just meeting their maturity dates and paying off as usual.
So those were the couple drivers of the higher payoffs in the quarter, and we are assuming those continue. And with the pipeline being basically flat with last quarter, which was really strong, we feel like mid-single digits is a better indicator looking out over the next couple quarters.
Jeff Rulis, Analyst at D.A. Davidson
Got it. Thanks, Bryan. I guess one last one on the margin then—sounds still positive, but maybe less in the magnitude of the linked-quarter increase, which I think, if we back it out, it’s maybe 8 basis points of core margin increase if you exclude the impact from the recovery interest. So I guess, you know, not to put a number on it, but just moderate that improvement, but positive nonetheless.
Don Hinson, Chief Financial Officer
I think that’s a good description of that. I think we’re going to keep moving forward on the margin, but it won’t be as strong as it was the prior quarter.
Jeff Rulis, Analyst at D.A. Davidson
So, and Don, sounds more earning asset benefit—like, as you said, kind of the benefit from the funding side or improvement that’s largely done. It’s just, when you scratch out gains, it’s going to be on the earning-asset or loan-yield side.
Don Hinson, Chief Financial Officer
Right. You know, if you look at what we put the new loans on last quarter— we read that slide in our deck every time where it shows what they’re repricing at. That’s where we’re going to get the lift.
Jeff Rulis, Analyst at D.A. Davidson
Fair enough. Thanks.
I’ll step back.
Kate, Operator
Your next question comes from the line of David Pfister with Raymond James. Your line is open.
David Pfister, Analyst at Raymond James
Hey, good morning everybody. I wanted to touch on that increase in originations. That’s extremely encouraging—glad to hear the pipeline is still strong. That increase in originations, would you attribute that to more of an increase in demand or a function of increasing productivity and activity from your team? And then just, you know, we’ve talked a lot about competition, especially on the pricing front. Curious how your willingness to compete on pricing to drive growth—just as kind of you philosophically balance NII growth versus margin.
Bryan McDonald, President and Chief Executive Officer
Yeah. And David, slide 12 has some good detail on the categories of the new production, and in my comments I just commented a bigger portion came in construction. You see that on slide 12, and so that was a chunk of it. Nothing new kind of relative to the categories that we’re financing there. To your original question, it’s an increase in loan demand. I do think our sales teams are very active—very, very active. But we’ve seen loan demand increasing since last summer after the big build, and then as we came into 2026, we’ve seen the pipeline continue to strengthen.
It’s not every market and every banker across the board, but we had significant closing volumes and closed the quarter with a really strong pipeline. So that’s the driver behind the volumes. In terms of pricing and our willingness to compete, we do look for the highest-quality opportunities out there in the market, and so these customers have options to bank with a variety of different banks. And so we do regularly compete on price. That’s not a new phenomenon—just kind of always present with that commercial client where you have the opportunity to take the full relationship.
So I wouldn’t say significantly different. It just continues to be a very, very competitive market, and, you know, we’re looking to win our share. We did see rates move up, but that was really driven by the underlying indexes moving up. You know, that five-year FHLB rate is what we price a lot of our term debt off of, and so that was really the driver behind the increase in rates on newly committed loans in the quarter, just with the indexes moving up.
David Pfister, Analyst at Raymond James
Okay, and then you guys have been very active and consistent managing the balance sheet and optimizing things, and that’s clearly helped the margin. How do you think about additional opportunities as you look to defend the margin and maybe accelerate—just optimize things?
Bryan McDonald, President and Chief Executive Officer
Yes. And in Don’s comments a minute ago, there’s still significant upside in the margin from asset repricing. Our average note rate is 5.72% and we put on new loans in the quarter at 6.40%. And then we also have significant upside in terms of rate resets on existing loans. And we have a slide in the deck. So there’s quite a bit remaining there, David, where every new loan that goes on or loan that reprices is going to be at a higher rate than what we have the loans on the books at, at least looking at things today.
So that’s a big driver. And then the loan-to-deposit ratio is also a really good opportunity to drive continued margin growth. You know, our loan-to-deposit ratio is still, you know, relatively low. So to the extent we can, you know, move that up a few percent, it’s going to have a big impact on net interest income.
David Pfister, Analyst at Raymond James
Okay, that’s helpful. Look, there’s been a decent amount of disruption across your footprint in both Washington and Oregon. I’m curious, do you see a whole lot of opportunity on the client acquisition front or on banker dislocation? And what’s your appetite for new hires or lift-outs at this point?
Bryan McDonald, President and Chief Executive Officer
Yeah, you know, we obviously had the combination with Kitsap that we closed in the first quarter, but outside of that, our last M&A deals were back in 2018. But slide 10 of our investor presentation has detail on all the teams that we’ve added and it’s been a key to our growth strategy. So yes is the answer — we’re still out actively talking to talent. This year, since we did Spokane last year, we’ve continued to add to that team and then also done banker additions across the market as talent’s become available.
But we’d certainly be open to continuing that or doing additional teams if good talent becomes available, either through industry consolidation or just otherwise through changes at their current institution. So I see that strategy continuing. David, okay, that’s great. Thanks everybody.
Kate, Operator
Your next question comes from the line of Andrew Terrill with Stephens Inc. Your line is open.
Andrew Terrill, Analyst at Stephens Inc.
Hey, good morning.
Bryan McDonald, President and Chief Executive Officer
Morning, Andrew.
Andrew Terrill, Analyst at Stephens Inc.
Hey, not to belabor the topic, but I did want to go back to expenses just for a moment. I appreciate the guidance. If I kind of compare where you’re talking, you know, clean 4Q run rate, it doesn’t seem like relative to $18 million of annualized cost saves you were expecting with the acquisition, it feels like you’re maybe coming up a little bit shy. So I wanted to ask — you know, there’s a lot of moving pieces here — but in your models, where are you getting at in terms of cost-save realization or cost-save achievement relative to that initial target, and what are the moving pieces that we should appreciate that maybe prevent us from fully seeing that coming out of the run rate?
Don Hinson, Chief Financial Officer
Well, I think we’re on the cost savings that we’re going to be hitting that from the merger. So if you’re seeing us come up a little short in some of the realization, I think there could be, on the legacy Heritage side, some other costs that we’ve added in as a result. So I think that’s where I’m getting the total number at — it’s also factoring that in.
Andrew Terrill, Analyst at Stephens Inc.
Okay, sounds good. And then I wanted to ask — I appreciate all the color around some of the deposit flows this quarter — just wanted to get your expectations around deposit growth in the back half of the year. Do you feel like you can kind of match that mid-singles type loan growth? I know I heard some of the comments around some of the competitive dynamics in the market. Just would love to hear your commentary on your willingness or desire to compete and match-fund loan growth.
Bryan McDonald, President and Chief Executive Officer
John. You want to start and then I’ll add some comments?
Don Hinson, Chief Financial Officer
Yeah, I think, you know, Q3 and somewhat in Q4 — last half of the year — is usually pretty good for us for deposit growth. Again, I would say mid–single-digit annualized growth type of thing. So I don’t see that changing this year. You never know until you get into it. I’m not noticing anything so far in early Q3 that would change my mind on that. So I think we’re going to probably have a strong Q3 and a decent Q4 — Q3 our strongest — and then Q4 also having some growth.
So I think that that’s what I’m expecting. But, you know, until you get into it, it’s really hard to say what will happen, where we are going to be. You know, we’ll be competitive on rates for deposits, so that shouldn’t be a hindrance there. But if the market rates go up such that people start looking for other funding outside of banks — whether it’s going into other investments — that’s something that’s a little hard to control, what they do with their excess funds.
Bryan, if you want to add to that.
Bryan McDonald, President and Chief Executive Officer
Yeah, we looked really closely at all of the deposit flows year to date, in part because of the drop in Q2, and really it was all a lot of normal activity, perhaps with the exception of a bit elevated customer sale activity — where a customer maybe sold a business in the first quarter and had significant excess funds in the account and/or sold it in the second quarter, ended up distributing the majority of what used to be the business deposits out as well.
But that wasn’t a material driver of the activity in the quarter — it was just more of an observation. So I tend to agree with Don. There is a lot of deposit competition out there, and we see that as we’re bringing on new relationships. But we’re traditionally going after those operating relationships, winning those. And really for the last couple years we’ve had to pay up for the excess funds on those relationships because we’ve been competing with a variety of other players, and the customers are very aware of what’s available to them in the market.
So those new dollars have been more expensive than what they’ve been in the past. But we have been competing for those relationships effectively for the last couple years. So if rates go up, I think it’ll get more competitive. But I still see us winning the same level we have in the past.
Andrew Terrill, Analyst at Stephens Inc.
Great. I appreciate all the color, and if I could just tack one on. Are you able to quantify — I mean, you guys have a fantastic deposit franchise; I think you said 1.64% on the IBD spot costs at the end of the period — are you able to quantify, for that kind of competitive new money you’re bringing on, the delta of an incremental dollar of deposit growth versus where the portfolio stands on an average basis today?
Bryan McDonald, President and Chief Executive Officer
Don, I’m not sure if you have that. We’ve looked at it in past quarters, Andrew, but I’m not sure if we prepared it ahead of the call today.
Andrew Terrill, Analyst at Stephens Inc.
Okay, no worries. Thank you for the questions.
Kate, Operator
Your next question comes from the line of Kelly Mata with KBW. Your line is open.
Kelly Mata, Analyst at KBW
Hi, good morning. Thanks for the question. I apologize if this has already been asked — I dropped off by accident briefly earlier — but I did hear a lot of talk about the flexibility of your balance sheet. You clearly have room on the loan-to-deposit ratio, a strong amount of capital as well. Wondering, as you think about the potential ways to drive upside to the margin, how you’re thinking about securities restructuring, buybacks, and all those things to kind of unlock the power of your balance sheet further.
Thank you.
Bryan McDonald, President and Chief Executive Officer
Don. You want to take that first and then I can add to it?
Don Hinson, Chief Financial Officer
Sure. I think that we’ll start with the last one — we talked about buybacks. Again, as I mentioned in my initial comments, we continue to be open to buybacks depending on market conditions and other capital needs. But it’s certainly something that we’re looking at and will continue to look at. So we could very well be just as active in Q3 as we were in Q2. But I’m not really trying to give you guidance there — just that we’re not necessarily slowing down, but at the same time we’ll be looking at what the market’s giving us on that.
As far as other things that we did, like I said, we did a little bit of an optimization trade on the investment portfolio. We’ll continue to look at trying to leverage what’s within the balance sheet that way. We don’t have anything large planned at this time, and of course we would be looking into, again, the repricing of the loan portfolio — that’s just going to be a big one. I think we will see some — like I mentioned before — I think we will see some pressure on CD rates going into Q3 with the way the market is on the one-year rates.
So I think that is going to be a challenge.
Kelly Mata, Analyst at KBW
Got it. I appreciate the time. Thanks so much.
Bryan McDonald, President and Chief Executive Officer
Thanks, Kelly.
Kate, Operator
I’ll now turn the call back over to Bryan McDonald for closing remarks.
Bryan McDonald, President and Chief Executive Officer
Thank you. 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. Goodbye.
Kate, Operator
Ladies and gentlemen, that concludes today’s call. Thank you for joining. You may now disconnect.
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