Criticized loans, which include nonperforming loans, decreased $58.3 million or 8.5%, driven by both upgrades and loan payoffs. Nonperforming loans increased $63.7 million or 57.2% primarily due to the movement of a $54.4 million C&I relationship to nonaccrual. We have been working closely with this borrower who is taking meaningful actions to stabilize performance. We are cautiously optimistic about a positive resolution. We also added a disclosure in our investor presentation related to our commercial real estate portfolio. This portfolio is granular and diversified by both property type and geography. Our most recent cash flow stress testing exercise has reinforced our view that it is well underwritten, can support higher rates and that we should expect stable performance.
Overall, our earnings continue to support our strong dividend. This, coupled with a reduction in off-balance sheet commitments and a modest reduction in loans, drove continued accretion in our capital ratios in the quarter. Our CET1 ratio improved 29 basis points to 11.37%. With that, I’ll turn the call back to Kevin. Kevin?
Kevin Riley: Thanks, Marcy. I am pleased with how we executed in the first quarter and remain optimistic about our performance for the remainder of 2024 and into 2025. Our strong levels of liquidity and capital provides us with flexibility to respond to market opportunities. Our liability repricing has slowed materially, and we anticipate a tailwind from asset repricing in the second half of the year. We are well positioned to be able to respond when customer demand begins to rebound. In the meantime, we will keep enhancing our service to our existing customers and working to add to our customer base. Our continued stress testing within our loan portfolio gives us confidence that our borrowers are well positioned as loans reprice.
I’m also pleased with our continued expense discipline while balancing investments in our own infrastructure and systems. This will allow us to maintain a strong near-term earnings profile while investing in the long-term success of the institution. The strength of our company provides us with the ability to continue attracting new relationships, serving the needs of our existing customers and further enhancing the value of our franchise in years to come. So with that, I’ll open the call up for questions.
Operator: [Operator Instructions] We’ll go first this morning to Andrew Terrell of Stephens.
Andrew Terrell: If I could just start on the $54 million C&I loan that was placed on nonaccrual this quarter, it sounds like you guys are maybe cautiously optimistic about positive resolution here. I was just hoping for maybe some incremental color. Could you share what type of industry this is in? And then maybe give us some comfort about the collateral that could support this relationship?
Kevin Riley: Yes. It’s a distribution company. It’s kind of — deals with construction, doors and stuff. It’s a sizable company with over $100 million in revenue. It had some — I would say, some management issues, but what they have done is they have replaced some of the senior management, and they have also brought in a consultant which we’re working with. And at this point, we feel pretty optimistic that the issues that they have will be resolved and there will be a positive outcome on this company.
Andrew Terrell: Okay. Understood. I appreciate it. If I could ask for Marcy. I think we previously talked about being comfortably above that kind of 3% level on the core NIM in the back half of this year. And obviously, it seems like the margin is kind of stabilizing and inflecting like we’ve previously talked about. Just as you see it today, do you feel like the 3%-plus core NIM in the back half of the year is still in the cards?
Marcy Mutch: Yes, absolutely.
Andrew Terrell: Okay. And then with — just looking at like the rate curve today, it looks like there’s one kind of forward curve baked in. If we were to take rate cuts off the table, do you think your NII guide would still stay the same for the year? Or would it impact that if we weren’t to take rate cuts, would it impact the 3% core NIM?
Kevin Riley: I think with some of the actions we’ve taken, Andrew, with restructures of our debt, we feel good that our guidance won’t really change much if the rate increases don’t come — rate decreases don’t come about because I think we really have restructured the balance sheet for higher for longer.
Andrew Terrell: Okay. I appreciate it. And then if I could ask just one more on the municipal funding. Could you share kind of the timing of when that occurred throughout the quarter and then what the rate was on the $185 million?
Marcy Mutch: Yes. So it was over 5% and timing in the quarter, some kind of — one was January and one was March, kind of split 50-50 there.
Operator: We go next now to Chris McGratty at KBW.
Chris McGratty: Kevin, just following up on the prior question on the C&I credit. The $54 million, where did that rank in terms of like largest relationships? Or can you help contextualize largest relationships with the bank?
Kevin Riley: Yes. We only have 5 relationships over $50 million. So it is one of our larger relationships. So we are a more granular portfolio, but that’s one of our larger relationships.
Chris McGratty: Okay. That’s perfect. And then I just wanted to circle back on the material weakness in the queue. Just any update there in terms of resolution costs and any potential impact that it could have on overall strategy?
Marcy Mutch: Yes. So Chris, we don’t expect any cost related to resolving this material weakness. You’ll see in the queue, we’ve remediated certain parts of the finding because it was an aggregation of different issues. And so we’ve remediated about half of them and the other half is kind of left to be remediated, but we expect to have those wrapped up well within this calendar year.
Chris McGratty: Okay. And then based on that, Marcy, wouldn’t affect, I guess, strategic dividends, use of the capital, anything else year-over-year?
Marcy Mutch: No, no.
Kevin Riley: Absolutely no.
Operator: [Operator Instructions] We’ll go next to now to Timur Braziler at Wells Fargo.
Timur Braziler: Kevin, your comments about fixed asset repricing back end of the year. Can you just remind us what the magnitude is, both on the loans and security side and then just kind of the cadence of that magnitude?
