Matt, I was curious if you could offer maybe a little color on the decline in the yield on mortgage warehouse loans this quarter. I apologize if you addressed it earlier. I joined a little late, but I know that can bounce around based on, you know, the deposit relationship as well, but it looked like it was down a little more than 50 basis points linked quarter. So just curious if you got any additional color there on maybe the reasons and maybe the trajectory going forward?Matt Scurlock No, yeah. I appreciate the question, Brad. So as you know, the mortgage loans do you have similar repricing and data characteristics to the rest of the LHI portfolio. But there is a relatively static portion of the mortgage finance deposits that receive payment through yield.
So as the warehouse balances come down and the deposit level sty stagnant, you’ll see a compression on the printed mortgage warehouse yields. As you move into the second quarter and those loan balances expand seasonally, you’ll see some of that pressure abate would be a more logical representation for you.Brad Milsaps Okay. Great. That’s helpful. And then just maybe a bigger picture question to follow-up on Matt’s question. You know, you guys have made a lot of moves to reduce your asset sensitivity, Texas Capital’s history is unfortunately account having a bit of a volatile margin. You’ll never sort of get rid of all of your asset sensitivity. But just curious if the Fed does stop and does at some point begin to go the other way, do you feel like you’re better locked into a certain margin floor or number that you’d be willing to share that would stabilize maybe earning power a little bit more.
Just kind of curious kind of how you think about that bigger picture just given the past and kind of the steps that you’ve made to kind of remove maybe some of that downside going forward?Rob Holmes Yeah, Brad. I think we often talk about that both in terms of structural changes to the business model and the balance sheet. So the business model itself is less interest rate sensitive, meaning these fee generation, categories continue to receive real receptivity from the client base. And expectation is that those will continue to increase in contribution to overall revenue as well as present different opportunities for client facing bankers provide value to their clients in a rates fall scenario, and then just structurally on the balance sheet the down 100 scenario is now inside of 5%.Obviously, that’s a shock scenario with a lot of assumptions.
That excludes any of the real benefit that we would realize through expansion across the mortgage finance businesses should rates fall to a point sufficient to generate new refi volume. So we we’re really proud to be honest that the progress made to generate an offering that’s going to sustain a bit more stable revenue and earnings generation regardless of what rate environment we’re in.Brad Milsaps So the 5% doesn’t include a big pickup in mortgage warehouse volume?Rob Holmes Zero. The loan balances are static in that view.Brad Milsaps Okay. Great. Alright. Thank you guys very much. I appreciate it.Operator Thank you. The next question goes to Brady Gailey of KBW. Brady, please go ahead. Your line is open.Brady Gailey Yes. Thank you. Good morning, guys.Rob Holmes Hey, Brady.Brady Gailey I wanted to start on the mid-single digit expense growth items.
For this year, that feels like a level that could be kind of the longer term expense growth trajectory. So I know your guidance is only for this year, but beyond this year, does it feel like you’re kind of settling in to see expenses grow at a mid-single digit pace?Matt Scurlock I think Brady, it’s too early to talk about 24, but I mean, I would reemphasize all of Rob’s comments. We’ve spent a significant amount of time, energy and resource, getting a better understanding for the very granular cost structure of this firm and have taken material steps to implement permanent solutions to ensure we can scale this for a long time. So I don’t anticipate similar to what we said in the third, fourth quarter of last year. And once we crossed this PP&R Rubicon, we would never go back, we’re never going to see expense grow faster than revenue.
We’re going to expand operating leverage defined as quarterly year-over-year PP&R for a long time. And this is an important step in realizing a lot of tech enabled process re-engineering benefit that we think is key to that long-term growth trajectory.Rob Holmes Yeah, Brady. I would just say that this was holistic, and it took, there may have been frustration for the time that took to do. But for two years, we’ve been really, really focused on cost allocation, data, process, tech, the entirety of the infrastructure of the firm. And we’re just getting to a place where we feel really, really good about it and we’re excited about to go forward. This was not changes on the margin. These are our deep structural changes.Brady Gailey Yep. Understood.
And then, you know, I know you guys are sticking with the 1.1 ROA guidance for 2025. You know, that’s a long way from here. You did 50 basis points last year. You’re roughly at 50 basis points in the first quarter, I mean, is it just as simple as you expect revenue growth to be off the chart, and it’s just the revenue growth that allows you to hit the 1.1 ROA?Matt Scurlock 55% increase in quarterly year-over-year PP&R, Brady, is our path to the ROA target. I mean, you’re not going to see 55% every single quarter, but as you know, Q1 is seasonally the lowest quarter for us in terms of earnings performance. So the structural expense infrastructure that we just described coupled with now a very defined set of businesses where we’re able to deliver the entire platform to a single client.
I mean, I think we’ve described it in the past as those are in our view sort of foundational tenants for future scale and we’d expect start to see that materialize this year.Brady Gailey Alright. And then finally for me, just bigger picture on credit quality. You know, it’s the second quarter that we’ve seen NPA’s increased. I know other they’re still at a relatively low level. In the second quarter that net charge offs have been a little higher. We just hired a new Chief Credit Officer, should we — are these just two quarters that are kind of off, or should we expect to continue to see a little bit of, credit noise this year?Rob Holmes I would say we affirm our guidance on credit cost through cycle and we feel really, really good about the portfolio from real estate all the way through C&I.
Matt, you have anything else?Matt Scurlock No. I think it’s a fair way. Think about it, Brady, we’ve talked before that good range for 2023 provision expense is likely 45 to 50 basis points of average LHI. I think that’s still a good way to view it. I think importantly, we’ve not been chasing loan growth to expand the balance sheet. We’ve been a recipient of high quality Texas based loan growth primarily because we have a lot of highly qualified bankers presenting a great platform that we think is differentiated into the market. So new client acquisition for us has been on target and we expect it to match up with our long term views on credit performance.Rob Holmes And lastly, there is one dynamic that is at work. Remember, we had a premium finance business with very, very, very little loss history.
And as you rotate and recycle all of that capital into C&I, which is much better, higher returning, structurally, better business. You’re going to have increased provision. That doesn’t mean losses, but you are going to have provision increase.Brady Gailey Yeah. That that’s a good point. Great. Thanks, guys.Operator Thank you. And our final question today goes to Brandon King of Truist Securities. Brandon, please go ahead. Your line is open.Brandon King Hey, guys. Good morning.Rob Holmes Good morning.Matt Scurlock Hi, Brandon.Brandon King So, I just had a question on the non-mortgage DDAs and understand that the client was, you know, clients still mix shifting into higher interest bearing accounts. But I’m curious kind of what’s your outlook there, do you think we see more stabilization going forward in those balances?Matt Scurlock Yes.
I think that the operating deposits held up pretty well. So there was select instances of access non-interest bearing not being used to meet seasonal payments, moving elsewhere on the platform, which is fine. I think Rob described in his commentary that we approached the market with a set of solutions. It’s there for them, not based on a list of requests based on our own priority. So we’re happy to avail our clients of different solutions on the platform. I think that the move that we’re going to be made in Q1, if any that resulted from just banking industry turmoil have likely occurred. And as Rob mentioned in his comments, we added a record number of new clients on the Treasury platform in March and our near term pipelines are up. So feel good about the prospects there longer term, Brandon.Brandon King Okay.
