Clarke Starnes: Hey, John. This is Clarke. While we’re comfortable with our reserve levels right now based on what we know today, obviously, CECL’s life of loan, given what you know today, obviously, if the economic outlook deteriorates any further or we do see additional deterioration beyond what we believe we’ve seen and forecasted today around the portfolio performance or risk attributes. You could see some additional incremental build, but I would not expect to see any sort of large build or hockey stick type. So I think it would be more incremental if we see some. And then as far as did say the CRE office reserve is 6.2% overall, I would remind you all, we have about 40% of our portfolio with our small loans and our wealth and CCB segments, which carries higher reserves. So we’ve got — but I think are really strong reserves against where I think the fundamental risk is in the office side and then our total CRE allocation right now is 240.
John Pancari: Okay. Great. Thank you.
Operator: We’ll move to our next question from Gerard Cassidy with RBC. Please go ahead.
Gerard Cassidy: Thank you. Good morning, Bill. Good morning, Mike.
Bill Rogers: Good morning.
Gerard Cassidy: Clarke, you were talking about what’s going on here in commercial real estate. And can you give us some further color on when you look at the nonaccrual increase in commercial real estate? Is it because the owners of these properties are losing tenants? Is it more the value of the properties have fallen and therefore the loan to values are out of sync? And then as part of the answer, how are you guys working to resolve working with your customers to resolve these issues?
Clarke Starnes: Great question, Gerard. I would say for us, we take a very strict view of accrual status when we think about whether a loan needs to be on nonaccrual or not. And I would just remind you what I said but majority of the loans that we placed on nonaccrual this quarter in the CRE office segment and C&I, but in the CRE office segment are actually currently — current from a contractual basis right now because they still have good economic rents. They’re hedged on the rate side, and so they’re performing on their payments. But we’re looking at what might happen at the end of term as the rate impact fully hit after the swaps go off and whether there’s any risk in leasing activity and then what it costs to, for example, reposition the property from an operating standpoint or structurally to be sure the loan could be resized at maturity.
And so that’s what’s driving our view of accrual status, so a lot of it is the valuation side unless the sponsor of principle can address these risks. The good news is we’re working with our sponsors. We don’t see our clients in any way just walking away from the loans. We have long-term relationships there. And so we’re looking at things like asking them to refit, bring in more equity, give us an LC, bring us some interest reserves. We may do some AB note splits while as they attempt to sell the property. So we’ve got a lot of tools in the tool chest and we’re working all of those. Our goal is to be early on this and work with as many borrowers as we can. And hopefully, the market will improve and will have good success.
