Jeff Deuel: Well, that’s probably a good question for you, Tony, but I’d kick it off by saying, Tony did mention, David, that we continue to underwrite loans as we always have done. So conditions changing, doesn’t necessarily mean we change the way we approach credit. So Tony, maybe you want to add to that with what you’re seeing out there?
Tony Chalfant: Yes, David, we’re — I would just kind of add on to that. I think what we’re seeing, as I’ve mentioned at the last couple of calls, just a more normalized move back to what we experienced before we were in this credit bubble over the last couple of years. I mean we would normally look at 9 basis points or 10 basis points of the portfolio as a good year of net charge-offs. And of course, we came off — we’re coming off 2 years in a row of net recoveries. So what I’m seeing kind of from a broad base is some operating companies that have that are struggling a little bit more than we’ve seen over the last couple of years. From time to time, we’ll see commercial real estate projects that really aren’t hitting the net operating income, the rental rates for the most part that they expected.
A few things like that where it’s becoming a little harder to convert from construction to perm once you get into the stabilization phase. But most of these are one-off type things, nothing really jumping out at me that seems broad-based or sort of systemic at this point.
David Feaster: And then last one for me, and we touched on this a bit with Matt’s question, but I just kind of wanted to get a sense for — how do you think about managing the balance sheet going forward? It doesn’t sound like there’s any plans for additional restructuring. We got the BTFP pay down. I’m just curious, you alluded to maybe preserving some capital for other options. I’m just curious, what else are you considering or looking at? And how might that change given the prospects of a higher-for-longer environment?
Don Hinson: Well, for higher for longer, I think that we’re looking at, again, or even things like the high-cost funding that we might have expected to come down, and maybe it’s not going to at this point. So it is a challenge to manage the balance sheet in the current environment when you actually don’t know which way the rates are going, right? Obviously, every things are coming down, but there’s always a chance that could go up. So that’s why in the last loss trade, we held on to some cash, credits going to pay down some debt. We’ll be looking to probably pay down debt, which means that are probably overall asset levels will probably not increase over the near term. But we’re looking to hopefully improve profitability. Again, it might allow for stock buybacks, that actually impacting capital if we reduce assets.
And so I guess those are the type of things where we’ll take advantage of what’s in front of us, such as potential buybacks at this point and other restructuring of the balance sheet that we feel makes sense for both short term and long term in various rate environments. And of course, balance sheet management is both looking at your kind of sustainable profitability and risk. So we’ll be kind of balancing those 2 things as we look forward.
David Feaster: Maybe to that point, I mean, your crystal ball is as clear as mine. But it’s — a lot of this is just time, right, just repricing the book. When do you think we get back to normalized levels of profitability?
Don Hinson: I think if we — if the yield curve remains in burden, it’s going to — it’s probably going to take a while. It’s just not — commercial banks are meant long term to be very profitable in an inverted yield curve. So — but I think if we can get the yield curve at least flat, if not upward sloping, I think it’s going to be difficult to get back to historical profitability levels.
Operator: Our next question comes from Andrew Terrell of Stephens. Please go ahead.
Andrew Terrell: Most of mine were addressed already. I just had one quick follow-up on some of the securities restructuring. Just Don, do you have the spot yield on the securities book as of 331?
Don Hinson: Andrew, I do not have that. I’m sorry. I think it’s not much different than probably a little higher than it was for the quarter. But if I can find that quickly, I’ll look that up, but I don’t have that on me.
Operator: [Operator Instructions] We have a question from Timothy Coffey of Janney Montgomery Scott. Please go ahead. Your line is open
Timothy Coffey : Don, just a couple of tick-the-box questions for you. The balance sheet restructuring benefits, that is embedded in kind of your NIM outlook. Is that correct?
Don Hinson: That is correct, Tim.
Timothy Coffey : And then you also said repurchases in the quarter were 130,000 shares?
Don Hinson: It’s 330, it was.
Timothy Coffey : Yes, [Indiscernible]. Okay. And then, Tony, a question for you. I appreciate all the discussion on the special mention loan, the loan that increased special missions and where some of the stress is. I’m wondering, do you have a sense of how much is in your portfolio of those type of CRE loans where there’s been a rehab and then leasing the leasing phase it struggled or is currently struggling.
Tony Chalfant: Yes, Tim, just off the top of my head. I think that’s really the only one I can think of that we’ve had a significant issue. I mean we have had situations where we’ve put something on a watch status because we recognized that there were some issues, but those have tended to resolve themselves. We had one a while ago that was in that position. The borrowers chose to sell the property actually at a nice profit rather than reinject more equity into the deal. So we try to catch them early and recognize that and more often than not, because so many of our deals have gear and tours behind an individual gear and tours with some financial strength, we’re able to sort of rightsize it or fix it before it becomes an issue.
Timothy Coffey : The breakout that you gave on the criticized loans, which I really appreciate, and I fully understand they are criticized loans. The construction and developments team is about 18% of that. What type of construction loans would they be?
Tony Chalfant: What are you — I mean what are you referring to in the, for the 18%?
Timothy Coffey : Page 19 is the pie chart of criticized loans by loan segment.
Tony Chalfant: Yes, yes.
Timothy Coffey : So I was trying to figure out what kind of loans would those be?
Tony Chalfant: I think what they’re going to be primarily are a lot of the — I’m not 100% sure of that.
Timothy Coffey : We can follow…
Tony Chalfant: Yes, we can — maybe we can follow up on that offline.
Timothy Coffey : Yes, that works. And then Jeff and Bryan, the loan pay downs that you’ve seen in the last 2 quarters, how much of that is a result of competition pricing?
Jeff Deuel: Bryan, that’s probably a better question for you since you’re closer to it.
Bryan McDonald : Yes. There really isn’t — I can’t think of any specific examples. It’s usually construction projects where there’s a takeout planned somewhere else or the loan just comes up to maturity, and the customer decides to pay it off with cash or sell the collateral. Those are the 3 most common. I did mention we expected higher construction loan payoffs in the second quarter and that, that was going to impact our overall growth rate. Those are predominantly our low-income housing projects that are being paid off through tax credit equity at the end of the construction period. So that’s the big driver behind the payoffs we expect in Q2.
Operator: We have no further questions in the queue. So I’ll turn the call back over to Jeff Deuel for any closing comments.
Jeff Deuel: Thank you, Lydia. Happy to wrap up the quarter’s earnings calls. We thank you for your time and support and interest in our ongoing performance, and we look forward to talking with many of you in the weeks ahead. Thank you, and goodbye.
Operator: Thank you again for joining. A replay of today’s call will be available shortly..
