Darren King : Right. So I think it’s hard, Gerard to pinpoint it on one or the other because they work together, right? I mean if occupancy and price per square foot was okay, are holding up, then you probably got the coverage to refinance when your loan is due. I remind you, when we underwrite whether it’s multifamily, office or hotel, we underwrite to long-term interest rates and long-term occupancy rates. And so we’ve got some protection built in with our clients when we underwrite. So there’s a little bit of room there. But as we look at it, I think in the short term, it’s the refinance risk, it’s a little bit bigger. Over the long run, we debate this a lot internally, and we go back and forth with our Chief Credit Officer, that this trend of more remote work, hard to handicap where that’s going to end up, right?
You can see some changes in the economy. You see some movements with some of the tech firms with employment. That may or may not drive people back into the office, we don’t know. But when you see younger people early in their professional career, you can see the benefits to being co-located with their co-workers. And so that trend, I think, ultimately starts to come back. Is it five days a week probably not, but it’s not going to be zero, at least this is Darren’s opinion. So take it for what it’s worth. To me, the bigger issue is when you look long term at the population, there’s a big chunk of the population called the baby boomers that are approaching retirement age. They’re not enough of them to come in up in the next wave to use all the space that they needed to sit in to be employed.
And that’s a longer-term cyclical trend, which will affect these things. And so there’s going to be some pain in the short term, no doubt. Over time, rates will move up and down and refinancings will happen. There will be some movement in and out. But to me, the longer-term trend is what’s happening with the population and the working population and what’s the capacity that exists today versus what the likely future looks like, absent any other changes in politics. And I will leave it at that before we get into a discussion I don’t want to get into.
Gerard Cassidy : Sure. As a follow-up question, based upon your experience and your conversations with your colleagues at M&T, what do you think is driving what we’re seeing today where the CECL reserve build — you and your peers obviously have to take a look at the economic forecast. Many people use Moody’s, which is weaker this quarter than last quarter, which drove up reserves. But at the same time, I think you mentioned your net charge-off numbers are expected this year to be below your through the cycle levels. Spreads in many areas, high-yield securities or even one of your peers that their corporate loan spreads haven’t widened out yet. What’s going on where we’re not seeing — we — I don’t think, some metrics telling us we’re going to have a tough downturn, whereas the reserve build is pointing to a weaker economy?
Darren King: Yes. I think, Gerard, to me, when I think about the way we all set aside reserves. We’ve got — it’s weighted heavily on your economic forecast and your R&S period, your reasonable and supportable period, which for a lot of the industry is the first couple of years and then there’s a reversion to the long-term average. And so what you’re seeing today is the current view where the charge-offs are well below the long-term average. And so the allowance is always going to take that the long term into account. And then you’re forecasting and bringing forward those losses based on the assumptions that go into the R&S period. And the expectation for unemployment to go up and for GDP to come down is there. It’s in the baseline for Moody’s.
