William Matthews: Yes. Michael, I don’t have the precise FDIC insurance expense model in my head, so I can’t answer that part of the question. We’ve modeled essentially a 4% merit increase across the footprint. And we do have some new hires. We’re investing in a number of parts of our business across the footprint as a result of our strategic planning and strategic initiatives process that we just completed in the fall. And so there’s some new hires coming in as well on some of that. And that will be come in throughout the course of the year as those initiatives begin, but all that’s baked into that $950 million number that I referenced and expecting something in the low 2.30% in the first quarter. Like I said in my prepared remarks, and you know this, but there are factors that can cause that to move around a little bit.
I mean loan production moving up or down will impact deferred loan costs. Production versus incentive goals will affect incentive compensation, things like that. So those are all variables that are in there, but that’s our best estimate at this point.
Michael Rose: Perfect. And then just moving to credit. Obviously, you guys built the reserve this quarter. It seems obviously changing a little bit of the modeling inputs, but it seems pretty conservative, especially with criticized classified moving actually down again Q-on-Q. Is there anything that when you look out at the portfolio that kind of worries you? There’s been a lot of talk around office and commercial real estate, maybe construction to some degree. I think this was asked every quarter. But just generally, how are you guys feeling about credit? And assuming the backdrop continues to soften or deteriorate, would we expect to see that reserve ratio continue to kind of grind higher under those pre-tense?
John Corbett: Michael, it’s John. I can maybe start on the asset quality. If Will has an opinion on CECL. I know I can tackle that. But as you mentioned, the asset quality is remarkably good right now. I mean charge-offs, 1 basis point is really all DDAs. So we’ve had net recoveries, loan recoveries in the quarter and in last year. Non-accruals did pick up, but it’s almost entirely, as Will said, government-guaranteed SBA. So the nonguaranteed portion is basically flat. We’ve added some slides, too, Michael, you might be interested in Page 33 and 34 that kind of breaks out our underwriting loan-to-value debt service coverages on commercial real estate and then also our consumer portfolio. But as far as the areas that we kind of are focused on and we think could be challenging in the next year or two, small business naturally is one.
I mentioned that pickup in SBA loans. But fortunately, we’ve got the guarantees there. But if you think about the pressure on small businesses with wage inflation, rent inflation, interest rate cost, that’s an area to watch. It’s very small for us, a couple of hundred million dollars, but the assisted living area with COVID, that, that continues to be something that we’re working through, some weakness there. And on office, the metrics are all great right now for us. But there is this social demographic shift that’s going on. We look at our office book, and it’s about 4.4% of the total loan portfolio. Right now, we’re at a 62% loan-to-value and a 1.67x debt service coverage. So it underwrites fine. I think the advantage for us on office is that we’ve done mostly smaller properties, 78% of them are under 150,000 square feet.
And our average office loan is only $1.3 million. So 90% of the portfolio in office for us doesn’t mature until 2025 or after. So hopefully, the office ship will be a slow-moving train, and our clients and us will be able to react as the market shifts. But those are the areas we’re watching so far. We haven’t seen the deterioration or past dues are stable, and special mention classifieds are coming down.
