Jeffrey Deuel : Yes. And Tony, you might want to join in with this response. I think it’s primarily, Andrew, from the standpoint that credit is so clean right now that it feels a little abnormal to us. And when Tony was reflecting on quarterly charge-offs historically before the pandemic were $700,000 a quarter, and we’re showing, what, $49,000 this quarter. That’s not normal in our minds. So our belief is that trends will return to normal at some point. We just don’t see it coming from any specific category right now. As Tony outlined, everything is pretty stable right now. There’s a lot of talk about recession downturn, soft or a hard landing. I think that we’re waiting for the — that to present itself in whatever form it’s going to be, but I don’t think we have anything specific in mind, quite frankly.
And I also think that contributes to Jeff’s question about capital. We’re just generally conservative in nature, and we’re going to keep our chips to play with and hold them until we see how things are going to play out. Tony, you may want to add to that.
Anthony Chalfant : Yes. Thanks, Jeff. Andrew, the normal is kind of a relative term here. What we’re really talking about is it’s been a very, very slow move back to a normal credit environment. When we look through 2022, we were seeing net recoveries on a quarterly basis, we don’t think that’s normal. And now that we’re starting to see a little — a few more losses as we go, that seems like, again, a very, very slow move to normal. Just internally, you’re seeing maybe companies that had some management issues that were maybe covered by the stimulus money in the system. Now those management issues are leading to maybe a few more credits that are moving into our special assets team to manage and just some things like that, very modest at this point, very, very slow move.
But we can kind of sense it turning just a bit as we go through each of the quarters in 2023. As far as areas we’re looking at, as I mentioned, clearly, like every bank, we’re keeping a close eye on our office loan portfolio. It’s been stable. We took that deep look at it, the non-owner occupied portion of that office portfolio in the second quarter, and we’ll continue to look for areas that we think are posing more of a risk and do some more of those special reviews as we go through the next several quarters, I’m sure.
Andrew Terrell : Okay. I appreciate it. And actually, if I could just follow up on the office loan portfolio review. And I guess as you look throughout that portfolio, it sounds like focused on maybe some of the loans above the average size, $1.5 million plus. I guess what did you find from just an average occupancy standpoint as you went throughout the process? Did you take a stab at reappraising or revaluing properties, just using comp-type math for any transactions that have occurred nearby? And have you seen any real changes in loan-to-value at the deep dive?
Anthony Chalfant : Yes. I mean we were looking at those on a selective basis is, Andrew. I mean, for example, if we saw one where there was some significant potential rollover risk, we were kind of saying, what would the impact be on net operating income? And we are probably spending more time looking back at debt service coverage than loan-to-value. The average loan-to-value in that portfolio is pretty low. So we have not — while we would look at that, the expectation is you probably have an issue with debt service coverage before you have an issue with loan-to-value. So I’d say most of the issues — when we looked at those 52 loans, we did end up with a few that we consider to be in a yellow or a caution category. Nothing that would warrant a downgrade, but we’ll continue to look at those.
