Operator: Next question comes from Julian Jonas [ph] with Raymond James. You may proceed.
Unknown Analyst: Good morning. So, I just have a follow-up on that last question. Are you able to quantify the visibility that you have into payoffs in the near term?
Malcolm Holland: Yes. I mean we — I also — it’s a little bit of a dart board game, but we get what I think clear and clear visibility. But at the end of the day, things may not refinance, things may not sell that some of our bankers think would happen. But if you look back into ’23, we had about $1 billion worth of real estate loans pay off. I don’t believe we’re going to get $1 billion in ’24, but we hope to get something close to that. So, it’s — our folks — the only way to tell you is our folks stay really close to our people, our borrowers, but things change with borrowers quickly. And so, the first quarter was not — was the first quarter we kind of missed on what we thought our payoffs were as we looked forward back in the fourth quarter.
So, we missed at the previous — four quarters, we hit it pretty good. So, we think we’ll have — we’ll go back to like fourth quarter levels in the second quarter. But I can tell you that 90 days from now, whether we’re successful.
Terry Earley: We forecast every month from the ground up, [indiscernible] payoffs. And we back test it. And so, I mean, is it perfect? No. But we’ve got really good visibility of what we think is going to happen over the next three quarters. Our bankers are optimistic about the year on payoffs, but the higher for longer rate scenario certainly adds an element to how you have to haircut that a little bit as Malcolm mentioned.
Unknown Analyst: Got it. Appreciate that. And kind of shifting over to expenses. I guess how should we think about out quarter noninterest expenses? And can you remind us when your annual merit increases occur?
Terry Earley: Annual merit incurs in April 1.
Malcolm Holland: Yes. That’s right.
Terry Earley: And look, I was a — I chose my words carefully that they were in line with management expectations. I know they were above consensus but if we’re going to fix this balance sheet and we’re going to create franchise value in our deposits, we’ve got to invest in the C&I small business space. We’re going to certainly try to be as thoughtful as we can and look for other ways to save money. But that’s what’s going to drive value here for us over the long haul. So, I mean we’re — yes. I can’t see — a lot of it depends on the performance over the course of the year and how variable comp goes. But certainly, the FDIC insurance premiums aren’t going down at all. And so, we’re just trying to watch it all. We can’t — I think the other thing that’s going on that’s not helping is we’re on a transition year on internal audit.
We’re in the process of build, as you do when you go over 10, you have to build out a full internal audit staff, and we have started that process. And — but yet, we’re still having to co-source a lot of this business. So, there’s a little bit of a double load on expenses when you start this process, if you will. And I mean we’ve enhanced our financial stress testing. We’ve enhanced our information security staff. We’ve enhanced our vendor management, our third-party risk management, our model risk management, our stress testing. So, look, don’t look for expenses to go lower.
Malcolm Holland: And you noticed most of those positions were non-production revenue-type people. And so, I would just echo what Terry said, I think the management was — felt pretty good about our first quarter expense levels.
Unknown Analyst: Appreciate that. And last one for me here. I want to beat the NIM horse again. So, kind of given the compression this quarter, in conjunction with the benefits from your recently completed securities portfolio restructuring, how should we think about the NIM and NII trending in the near term? And do you have a sense for when the NIM will trough?
Terry Earley: I think it’s largely through right now. I think it should be pretty stable over the balance of the year. But I’ve got to note, I think there’s 3 things that I’m watching really closely in regard to that current belief: wholesale funding cost; interest reversals on credit with a higher for longer rate environment and; deposit mix. And if those things don’t go the way we think, then the NIM could feel that. What we pick up, the benefits we get from the securities trade could be sacrificed and then some. So that’s the best way. Interest reversals have been pretty painful for us for the last several quarters from loans going into nonaccrual. I don’t see more right now, but higher for longer, you just don’t know. Here’s the other thing I would say on that is we’re currently planning 2 rate cuts. And so, when I talk about the NIM from here, that’s what we’re internally forecasting involved.
Operator: Our next question comes from Matt Olney with Stephens. You may proceed.
Matt Olney : Good morning, everybody. I guess, kind of on that last question around the margin. Terry, you mentioned interest reversals. I appreciate why the loan yields went down this quarter versus the fourth quarter. I’m guessing it’s related to reversals, but just any color there?
