Damon DelMonte: Got it. Okay. And then just lastly, looking at the deposit base, do you have any deposits that are tied specifically to an index rate so that if and when the Fed does cut rates, you’ll get some relief in that portion of the portfolio?
Tom Bell: Yes. I mean some of the deposits we have that are like brokered money market accounts, they’re tied to Fed funds, and they’re on for our balance sheet hedge purposes. So, we’ll see an immediate benefit from that. And then, there’s a few clients that are more in the public entity space where we were tied more to an index there. So, we’ll get definite relief immediately 100%.
Operator: Your next question is from Brian Martin from Janney Montgomery Scott.
Brian Martin: Just a follow-up, Tom. I was going to ask you to Damon’s question. Can you walk through what — on a rate cut, what reprices on the asset side, an immediate or a lag? And then on the deposit side, if you can just quantify some of that? Can you give some color on what moves immediately versus it being a lag and just how much of it?
Tom Bell: Well, again, I would point you to Slide 8 where we have our interest rate risk profile. We give you the scenarios of how we’ve reduced our asset sensitivity on a year-over-year basis and then what happens in a static 100 basis point decline in a ramp decline of 100. And that would include our assumptions around repricing of both assets and liabilities. So, we are asset sensitive, and we have, in a static, 100 basis points, it’s $3 million per 25 basis points. So that would be earnings — that would be the NII give-up.
Alberto Paracchini: On an annual basis.
Tom Bell: On an annualized basis. So again, subject to the timing, it’s challenging because if the Fed — as you know, if the Fed eases in March, well the SBA book gets repriced immediately in April. And if they ease in May, then that actually takes place in July. So timing matters, both on the asset side and the liability side. And based on our — the forward curves, which we’re using for our rate forecast, the expectation is the numbers I quoted you on an NII basis.
Brian Martin: Okay.
Tom Bell: But the book…
Brian Martin: And how much of the loan book is variable? Go ahead. I’m sorry.
Tom Bell: No, it’s under 50%. We have 48% in fixed rate and then the combination of Prime and SOFR or the other parts. So it’s kind of 50-50-ish. But again, you have investment portfolio, it’s straight as well. So it’s a little bit skewed, 60-40.
Alberto Paracchini: Yeah. And if you — even when you think about — and I think Brian, I think this is an important point. So even when you think about the fixed rate component, which, let’s say, it’s roughly around 48%, remember, a lot of those are really commercial loans, which are going to be shorter in tenure than, for example, a fixed rate mortgage loan. So, those are going to be typically, it’s — let’s assume it’s like a 3-year, 3.5-year duration on those assets. So every year, you have about a third of that component, roughly speaking, that is going to be repricing as well. So just keep that in mind.
Tom Bell: Yes, we’d say our loan base is about 52%.
Brian Martin: Okay. Just, I guess, a couple of — there are one or two others. Just on the capital, you talked about M&A. Just as far as the buyback, can you talk about your appetite there versus the M&A? It sounds as though M&A might be more of interest in the short term than the buyback and having the buyback in place if something doesn’t pan through on that. So that was one. And then just secondly, as a follow-up on your M&A outlook, just remind us what — if you talk about what are the characteristics of a target that are value to you today.
Alberto Paracchini: So in terms of — to the first part of your question, I think, Brian, it’s just we’re very, very consistent in how we think about capital allocation, first and foremost. When you think in terms of priorities, it’s to support the growth of the business. So we want to make sure that we have more than enough capital to continue to grow our business, continue to invest in the business, talent, infrastructure, et cetera. As it pertains to the next several categories, the dividend, the M&A or ultimately the buybacks, obviously, we want to — we’re endeavoring to continue to make sure that we are paying our dividend. And M&A is really a function of — you need, obviously a counterparty that has to be like-minded.
You need to strike a transaction, and that transaction from a return perspective, from an earn-back perspective, from a strategic and also culturally for the business has to make sense. So, if all of those categories check — we can check the box in those categories, then that’s basically telling you that we feel like M&A is superior to — we have excess capital, we have no better use for it, and therefore, we can look to the buyback to return that capital back to shareholders. So, I would think about that in that priority. And then, you asked a question about targets. I think when we think about targets today, obviously, we’re a slightly larger company. We’ve grown as a company over time. But we still think that kind of the target market is somewhere between $250 million, $300 million to up to about $4 billion in the greater Chicago metropolitan market.
That comes about to around 50 targets in that category today. And that, I would say, would be kind of — continues to be our target market.
Brian Martin: Got you. Okay. That’s helpful. And then maybe just one for Mark on the credit side. Just with the — can you comment, Mark, just on the change, if there was any, and if you put this in the deck and I missed it, I apologize, the special mention credits kind of how they trended from third to fourth quarter? And then, just areas that — I guess you’re paying closer attention to today, give us some of the dynamics during the last 90 days or so in the market?
Mark Fucinato: Special mention credits, you said? Okay. Well, special mention credits, there was an increase, but we also had good resolutions in that area also. We continue to see good resolutions. But at the same time, we’re dealing with a lot of our PCD credits that have moved in terms of rating and I expect that to be a lot of the same activity we’re going to see this year. There’ll be ins, there’ll be outs. But some of the moves we’re making strategically on these credits that we want to either exit or look to upgrade is going to be the key. Can we execute those strategies? Which are unique to each particular deal? I think we can, there’s no trend in terms of what particular asset class is in the criticized book. We’re not seeing one area where we’re seeing a big increase.
