Darren King : Yes. There’s a few things John, that we’ve been working on all this year to start to protect the NIM. First, you’ve seen us increase the size of the securities portfolio, and we’ve talked a little bit about growing that a little bit further in 2023. Within there, we also anticipate shifting the duration a little bit. We’ve taken some duration so far in — on the balance sheet, in the mortgage portfolio, we’ll slow that down and we’ll take that duration in the securities portfolio with some MBS — we’ll also be doing — we mentioned some term funding, which we’ll lock that in, which will also help. And then the thing that ultimately is the biggest benefit to maintaining the margin and reducing asset sensitivity is deposit pricing, right?
And so it’s a little bit painful when it’s compressing on the way up, when it’s catching up to the loan pricing. But ultimately, the best way to combat declining rates is through repricing of deposits. And so those three things would be the biggest help. We will and continue to have a hedge portfolio that helps reduce some of the asset sensitivity in the short term, might help the NIM of some of the earlier hedges that were put on that are a lower received fixed rate roll off. And so those are kind of the three major things that will have helped us reduce our asset sensitivity, and will help us protect the NIM at these kind of higher levels as time goes on.
John Pancari : Okay. So no major change in terms of the hedging swaps other than what is rolling off, correct?
Darren King: Yes. We’ll see how much we grow from where we are at the end of the first quarter because of the position of the balance sheet and what we’ll do will likely not be to add to outstanding notional but to add to forward starting is likely what we would do.
John Pancari : Right. Got it. Okay. And then just one other follow-up on the commercial real estate front, could you maybe give us an update on what you’re seeing there in terms of credit trends, maybe trends in delinquencies and criticized assets and any time distress in the office portfolio, that would help?
Darren King : Yes, sure. Within — in the commercial real estate portfolio, the biggest trend that we’ve had going on for probably the last four quarters is just the reduction in the construction portfolio. And so a large number of construction projects were originated in late ’18 and during 2019. And as the pandemic went, they continued but at a slower pace, and those have been coming to completion this year. And as those have come to completion, they’ve turned into permanent mortgage financing oftentimes not on our balance sheet. And so you’ve seen the decline in commercial real estate largely being construction related. When we look underneath at some of the major categories and we look at the criticized, we actually have seen hotel criticized balances peak probably about two or three quarters ago.
It got as high as about 86% of our hotel portfolio. It’s now down below 50%. And if we’re seeing remixing in the criticized, there’s two categories. One is healthcare, which we’ve talked about a little bit before, and that’s typically assisted living and senior housing. And that’s not from a lack of demand that we’re seeing some challenges in that portfolio. It’s their ability to staff. And so we’ve seen occupancy rates in these portfolios come up post pandemic but they’re not able to get all the way back to pre-pandemic levels because there’s not enough staff to adequately care for the folks that want to live there. And then the other place, obviously, we’re looking at is office, and we’re paying a lot of attention to office. The portfolio, I think, is as of the end of the year, right around 20% criticized, we’re watching lease expirations and lease sign-ups.
