James Mahan: Yes, I think Steve, the other way to think about it is we had a lot of growth throughout last year. So looking at Q4 and that sort of core expense number, I think will be in high single digits or mid single digits of growth over that kind of call it less than 10% growth on that number, but to BJ’s point that’ll translate year-over-year higher, just given the ramp up over the course of last year.
Huntley Garriott: Steve I think the only thing that could upset that right is back to your earlier point, right? If this is a true recession and if the credit guys end up running these banks and if there are opportunities to hire other lending officers, we will be in that hunt. But that is not suitable at this time.
Steven Alexopoulos: Yes. If I could squeeze in one last one, just on credit, did the commentary around a small number of relationships you talked about impacting credit quality, anything to read into there? Any industry one offs? Just give a little bit of color there? Thanks.
Steve Smits: Steve, this is Steve Smith Chief Credit Officer. No systemic or anything to read into it. I would say that’s based on a handful of relationships that are going through some turmoil with their management teams still paying as agreed. However, we opted to reserve against those, because it will be potentially navigating some uncertain times. And so I don’t suspect that that is going to turn into losses. But it’s kind of a conservative approach. Let’s reserve against that. Because and see if these management issues with our borrowers escalate, we’ll be prepared and ready for it. So it’s kind of a conservative approach, but not anything systemic that jumps out these are unrelated issues.
Steven Alexopoulos: Got it. Okay. Thanks for taking my questions.
James Mahan: Thank you.
Operator: Thank you. Our next question will come from Crispin Love of Piper Sandler. Your line is open.
Crispin Love: Thanks. And good morning, everyone. First one is on SBA gain on sale margin. So they were at 5% in the quarter well below recent quarters. But you did sell more SBA in the fourth quarter than you did in the third. So I’m just, can you speak a little bit to your strategy there? And why you didn’t balance sheet more loans in the fourth quarter similar to what you did in the second quarter? And then just your expectations for selling versus holding on the balance sheet in early 2023?
William Losch: Sure, Crispin. Hey it’s BJ. One thing that has been particularly surprising and impressive about what our lenders have been able to accomplish is the beginning of the year, about 30% to 35% of our production was variable rate. So 65% to 70% was fixed rate. And that obviously was as we talked about difficult to sell. By the end of the year, we were over 50% variable rate in terms of the production that we were booking. Variable rate market was still relatively healthy from a gain on sale perspective. And so we had more capacity and more eligible loans for sale that were attractive to investors. So as we looked at where we would want to manage interest rate risk, what kind of balance sheet we wanted, and what kind of gains that we felt we could take in the fourth quarter from SBA sales, we decided to sell a little bit more of the variable knowing that we had quite a bit of it on the balance sheet already. So that was part of the math there.
Crispin Love: Okay, thanks, BJ. That’s helpful. And then do you have any early reads on the first quarter for margins? Have they begun to form a little bit? Or do you expect a little bit more of the same for near term trends?
William Losch: Yes, so I’d say that the variable rate SBA market continues to heal. It’s probably still a couple 100 basis points from €œnormal levels€, but there’s — there’s healthy activity and there’s buying if we choose to be in the market and sell. USDA and SBA fixed rate product is still virtually nonexistent from a buying perspective. So we’ll be holding those. So like I said at the opening, we’re just expecting pretty muted activity from a gain on sale perspective in the first half of the year and hoping it opens up in the second half. But one of the thing I did say that I wanted to reiterate now that we’ve got our gain on sale as a percentage of quarterly revenue somewhere in that 7% to 10% revenue range and gives us a total revenue mix of let’s say around 80% spread income 20% fee income versus historically over the last couple years, we’ve been more 70/30.
I think that’s actually a pretty good place for us to be. It minimizes our gain on sale and frankly, reliance on gain on sale every quarter, allows us more flexibility to sell more if we see attractive pricing, sell less if we want to hold more. But then importantly, it gives us much more recurring revenue through NII and balance sheet growth, which we think is certainly more predictable and obviously attractive to us and to investors. So this has actually given us an opportunity to kind of reset what our gain on sales strategy is and grow more balance sheet.
