Prepared remarks
Thank you very much, everyone, for holding. This conference call will begin shortly. Hello, everyone, and welcome to the Texas Capital Bancshares, Inc. Q1 2025 earnings call. My name is Ezra, and I will be your coordinator today. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please I will now hand over to Jocelyn Kukulka, Head of Investor Relations, to begin. Please go ahead.
Good morning, and thank you for joining us for Texas Capital Bancshares, Inc.'s first quarter 2025 earnings conference call. I'm Jocelyn Kukulka, Head of Investor Relations. Before we begin, please be aware this call will include forward-looking statements that are based on our current expectation of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual report on Form 10-K, and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at texascapital.com. Our speakers for the call today are Rob Holmes, Chairman, President, and CEO, and Matt Scurlock, CFO. At the conclusion of our prepared remarks, our operator will open the call for Q&A. Now I'll turn the call over to Rob for opening remarks.
Thank you for joining us today. This quarter's results continue to evidence our clearly differentiated strategy and operating model. Contributions from across the firm enabled another quarter of strong financial progress, with year-over-year revenue growth of 9%, adjusted pre-provision net revenue growth of 21%, and tangible book value per share growth of 11%, which ended the quarter at a record high for the firm. The company also maintained its peer-leading capital levels with tangible common equity to tangible assets of 10%, while continuing to effectively support clients' growth objectives during the first quarter of the year. Earning the right to be our client's primary operating bank remains the foundation of our transformation, with sustained success again displayed by another quarter of peer-leading growth in treasury product fees, which increased 22% year-over-year to a record high for the firm.
Noninterest-bearing deposits, excluding mortgage finance, grew 7%, marking the firm's largest quarterly increase since 2021, and are up 11% since the first quarter of last year. Consistently increasing client relevance through both breadth and services and quality of advice continues to deliver a longer duration, less rate-sensitive deposit base, further evidenced this quarter by our ability to effectively reprice down our liabilities, supporting a 26 basis point increase in late quarter net interest margin and a 10% increase in year-over-year quarterly net interest income. Looking ahead, we remain confident in our ability to deliver risk-adjusted returns consistent with our published targets. Deliberate actions over the last four years purposefully positioned our firm to operate through any market or rate cycle, with our financially resilient balance sheet, tailored coverage model, and breadth of products and services enabling us to uniquely serve clients as they navigate this period of elevated macroeconomic uncertainty.
Recent tariff actions and resulting volatility in the financial markets could manifest in changes to client confidence, affecting hiring, capital investment, and M&A. Today, institutional debt markets are still functioning, albeit at higher costs. Banks are still aggressively competing for high-quality credits, and flows on our institutional sales and trading desks continue to grow in a consistent manner. Our perspectives are influenced by unique positioning as the only full-service firm headquartered in Texas, with significant connectivity to small businesses through our top five SBA 7(a) lending program, our loan syndications team, which has reached as high as the number eight lead arranger in league tables for middle market loan transactions in the country, our extensive reach into institutional credit markets, to more than $25 billion of leveraged finance transactions we facilitated last year, and our institutional sales and trading business, which now transacts with over 1,000 active accounts.
You have often heard me say that we regularly prepare for a range of economic or geopolitical outcomes beyond the base case or consensus view. Strategically, that means operating without balance sheet concentrations, deploying products and services that allow us to comprehensively serve clients, and carrying liquidity, capital, and reserve levels that enable confidence and flexibility across a range of economic scenarios. We often refer to that as operating with a balance sheet and business model that is resilient to market and rate cycles. It is because of our deliberate preparation that we are confident about the future and expect to continue to onboard and serve the best clients in our markets. Thank you for your continued interest in and support of our firm. I'll turn it over to Matt to discuss the financial results.
Thanks, Rob. Good morning. Starting on slide five, first quarter total revenue increased $24.1 million or 9% relative to Q1 of last year, supported by 10% growth in net interest income and 8% growth in fee-based revenue. Linked quarter total revenue declined by $3.2 million or 1% for the quarter, as a $6.4 million increase in net interest income was offset by a decline in fee revenue as mid to late quarter capital markets uncertainty limited pull-through at a strong and building investment banking pipeline. Total non-interest expense increased $30.9 million quarter over quarter, due to $14 million of expected seasonal payroll and compensation expenses, resetting annual variable compensation accruals, and onboarding a previously discussed talent and fee income areas of focus, particularly investment banking. Taken together, year-over-year pre-provision net revenue increased 21% or $13.5 million on an adjusted basis to $77.5 million, which should, as expected, represent a low point for the year.
This quarter's provision expense of $17 million resulted from $422 million of growth in growth loans held for investment excluding mortgage finance, $10 million of net charge-offs against previously identified problem credits, and our continued view of the uncertain macroeconomic environment, which remains decidedly more conservative than consensus expectations. The firm's allowance for credit loss increased $7.2 million to $332 million, finishing the quarter at 1.85% of loans held for investment excluding the impact of mortgage finance allowance and loan balances. Net income at common was $42.7 million, an increase of 44% compared to adjusted net income to common in Q1 of last year. This continued financial progress coupled with a consistent multiyear buyback approach contributed to a 48% increase in quarterly earnings per share compared to adjusted earnings per share from a year ago. The firm continues to operate from a position of financial strength, with balance sheet metrics remaining exceptionally strong.
Ending period cash and securities comprised 27% of total assets, as the firm continues to onboard and expand client deposit relationships while supporting their broad needs, including access to credit. These consistent client acquisition trends are increasingly resulting in risk-appropriate portfolio expansion, with any period gross loans held for investment balances, excluding mortgage finance, growing $422 million or 2% linked quarter. Average commercial loan balances increased 4% or $401 million during the quarter, with broad contributions across areas of industry and geographic coverage, and ending period balances now up approximately $1 billion or 10% year over year. Real estate loans also increased during the quarter, up $208 million, and were flat to first quarter 2024 levels, as new volume resulting from our consistent market-facing posture outpaced potential payoffs that could result should rates move lower.
As anticipated, average mortgage finance loans decreased 27% linked quarter to $4 billion, as quarterly seasonal home buying activity hit its annual low in Q1. Given ongoing rate volatility, we remain cautious on our mortgage outlook for the remainder of 2025, with full-year expectations for a 10% increase in average balances predicated on a $1.9 trillion origination market. Linked quarter deposit growth of $814 million or 3%, driven predominantly by our continued ability to onboard and expand core operating relationships while serving the entirety of our client's cash management needs. This was the third consecutive quarter of growth in non-interest-bearing deposits excluding mortgage finance, which increased $250 million or 7% linked quarter, to finish at their highest level since Q2 of 2023. Client's interest-bearing deposit balances also continue to expand and are now up approximately $2.9 billion or 19% year over year.
Our sustained success winning high-quality deposit relationships continues to enable maintenance of decade-low levels of broker deposits and a select reduction of higher-cost deposits we are unable to earn an adequate return on the aggregate relationship. This is in part observed in the ratio of average mortgage finance deposits to average mortgage finance loans, which improved to 113% this quarter, down significantly from 148% in Q1 of last year. We would expect this ratio to trend below 100% as loan volumes grow in a seasonally stronger second and third quarter. Our model's earnings at risk were relatively flat quarter over quarter, with current and prospective balance sheet positioning continuing to reflect a business model that is intentionally more resilient to changes in interest rates. Improvements in rates fall earning sensitivities were driven by adjustments in down rate deposit betas to better align with recent experience, and the addition of $300 million in forward starting receive fixed swap that will become active in Q3.
Given the volume of maturing swaps, we do anticipate future interest rate derivative or securities actions over the course of 2025, augmenting potential rates fall earning generation at materially better terms than available during our deliberate pause to the mid-part of last year. The total allowance for credit loss including off-balance sheet reserves increased $7 million on a linked quarter basis to $332 million, up $28 million year over year. When excluding the impact of mortgage finance allowance and loan balances is 1.85% of total loans held for investment, two basis points below our high since adopting CECL in 2020. Despite a modest increase in late quarter special mention loans, criticized loans decreased $96 million or 11% year over year, supported by stable substandard loan balances and an $8.5 million or 8% decline in year-over-year non-performing assets. We remain highly focused on proactively managing credit risk across a range of both macroeconomic and portfolio-specific scenarios, including those associated with the recent trade policy-induced market volatility.
With our frequently discussed through-cycle approach centered on quality client selection, excess capital liquidity, and consistently applied reserving methodology. Specifically, the firm has been focused on the effects of possible tariffs since late summer 2024, so as the presidential campaigns were moving towards the November election, with initial emphasis on Canada, Mexico, and China. While too early to know the precise impact of the April second trade announcements, we remain confident in our routines to monitor and manage the portfolio while effectively supporting clients as they look to navigate considerable economic uncertainty. Consistent with prior quarters, capital levels remain at or near the top of the industry. Total regulatory capital remained exceptionally strong relative to both peer group and our internally assessed profile. Tier One finished the quarter at 11.63%, a 25 basis point increase from the prior quarter, supported by continued strong capital generation coupled with effective implementation of the enhanced credit structures discussed last quarter for 15% of our mortgage finance loan portfolio.
Our continued client dialogue suggests at least 30% of Q2 mortgage finance balances will qualify for the improved structure associated with reduction in risk-weighted assets. We continue to deploy the capital base in a disciplined and analytically rigorous manner focused on driving long-term shareholder value. During the first quarter, we repurchased approximately 396,000 shares or 0.86% of prior quarter's shares outstanding, for a total of $31 million at a weighted average price of $78.25 per share, or 117% of prior month tangible book value per share. Turning to our full-year outlook, despite observed macroeconomic uncertainty, we are raising our revenue guidance to low double digits percent growth. The higher end of our previously disclosed range is our ability to effectively serve clients across an increasingly broad platform should continue to differentiate in the market while providing revenue resilience across a wide range of potential scenarios.
We're maintaining our non-interest expense guidance of high single-digit percent growth, which includes resumed progress associated with fee-based initiatives in the second half of the year. The full-year provision expense outlook remains 30 to 35 basis points of loans held for investment, excluding mortgage finance, which should enable the preservation of industry-leading coverage levels while effectively supporting our clients' growth needs. Taken together, this outlook suggests continued earnings momentum and achievement of quarterly 1.1 return on average assets in the second half of the year. Operator, we now would like to open up the call for questions. Thank you.
Questions and answers
Thank you very much. If you would like to ask a question, please ensure your device is unmuted locally. And if you change your mind or your question has already been answered, please press star followed by two. Our first question comes from Woody Lay.
Hey. Good morning, guys. Wanted to start on the revenue guide and just wanted to better understand the motivation to now target the higher end of the range. Is that really being driven by net interest income? I mean, it was a nice NIM increase in the quarter, solid growth. Is that what is driving the high revenue guide?
Yeah. You got it, Woody. So we noted on the first quarter call that we can move to the higher end of the revenue guide if we saw certain deposit data get to sixty prior to the mid part of the year. Ultimately, go higher than sixty, if we saw loan held for investment excluding mortgage finance deliver comparable loan growth to last year and if we were suspecting that average mortgage finance volumes could be up ten percent for the full year. So those were the general components that we outlined that would move us to the higher end. Those are obviously all things that have either already transpired or that the current outlook suggests will. There is no question that the earned net interest income improvement that you cited could potentially be partially offset by decreases in fees, but as noted in both my comments as well as Rob's, the majority of the transactions in our investment banking pipeline haven't been canceled. They've just been delayed. So if we get to the second half of the year and those transactions do start to fall away or push into 2025, you'll see us start to adjust down the expense outlook to reflect lower fee-based incentives. At this point, we feel pretty confident in the ability to deliver double-digit growth and revenue across a pretty wide range of economic and interest rate outlooks. Got it. Yeah. That's great to hear.
Maybe shifting over to loan growth in the pipeline, you know, it was a really strong growth quarter in the first quarter. How's the pipeline shaping up into the second quarter? And are you seeing the macro uncertainty impact client's demand for loans at this point?
Yeah. I'd note that along with the consistently growing and improving deposit franchise, we do continue to fill clients' capital needs through a variety of channels, which includes access to bank debt, which are now pretty sustained client acquisition trends coupled with multiple quarters of slowing capital recycling. That's what supported the $422 million or ten percent annualized increase in loans held for investment this quarter. There are some risks to that pace continuing, notably some of the previously discussed potential for accelerated payoffs in commercial real estate, which should move slightly higher in Q2, but the outlook for onboarding new client relationships at this point is still quite strong.
Got it. And then last for me, I wanted to ask about the buyback. It was great to see you all active again in the first quarter. Obviously, with the market pullback, the stock is a little bit cheaper today. So how are you thinking about forward buybacks from here?
Yeah. I’d say that we're pretty boring on this topic. There's no change in capital priorities, and we rely on the exact same highly disciplined approach to allocation that you've seen us employ since Rob arrived. Times like this are precisely why we choose to carry excess capital. To your point, the stock's clearly trading below levels where we previously been comfortable buying back shares alongside opportunities for new client acquisition. We've got multiple compelling options for near-term capital deployment. I'd call out that further supporting the optionality is our success in implementing the enhanced credit structures for the mortgage finance product. So we noted in the prepared remarks that as of March 31, we had $715 million or fifteen percent of clients that have moved into that structure, which reduced their risk weighting from one hundred percent to twenty-six percent, resulting in a twenty-one basis point increase in regulatory capital. Based on current client interaction, we suspect we can get that number to thirty percent of ending period Q2 warehouse balances in that structure. So with near ten percent tangible common equity, a lot of new client acquisition, and building regulatory capital, we've got a lot of options in terms of capital deployment.
Alright. Thanks for taking my questions.
Thank you. Our next question comes from Ben Gerlinger with Citi.
Good morning. Can you guys I think you said the commentary for clients, especially the investment banking, isn't that things are canceled, that they've been pushed? Is there something that they're looking for either economically or political clarity that they're citing loans? I'm just trying to think, like, how the rate of change. It seems like every bank has said client activity slowed a little bit since liberation day. But all things equal, still a healthy economy. I'm just kind of curious. Is there any sticking point specifically?
What are they looking for? They're just looking for certainty. It's very, very hard to project financial forecasts in a world of as great uncertainties as we have today. Uncertainty is the great killer of all deals. You have, like we said, the debt markets are functioning, but you know, if you don't have to go in periods such as this, then you don't go. A lot of people only go in when they have to. And they'll do it at wider spreads than maybe necessary or previously they could have achieved before what you called liberation day. So I think the uncertainty index that people keep referring to is very, very real. We had low single-digit millions of investment banking fees fall away that won't come back. But the rest of the pipeline that suggests was pushed out. It's really hard for a CEO or a board to do something strategic in an environment such as this. It's also not a great time to refinance or plan capital investment or build your inventories until you know what the economic environment's going to be going forward.
Gotcha. That's helpful. And then, yeah. Long way of saying it's a lot of factors. Sorry. Right. No. No. I understand. I just I just more so think and you entered it well, Rob. Appreciate that. It was just more so thing you just kind of anything specific, but it's it's a tough environment for certain too. So, yep. Not not lost on me. So when you look at what yield and securities yields, they're up linked quarter. I mean, is this trend continue?
I just wanted to double check on everything that you guys have done. There is anything you could use in credit that within those this core would have inflated it more than normal? You had the full quarter impact then of the mortgage finance deposit repricing that occurred in the back end of last year. So there's a couple of months delay before that ultimately shows up in loan yields. Those costs are split about sixty percent attributed to the mortgage warehouse and about forty to commercial loans to mortgage companies. But aggregate yields as well as spread on new origination are roughly the same. On the securities portfolio, we've got around $120 million a quarter of cash flows. We're reinvesting somewhere around five point three percent. That obviously changes every single day. You can expect to see us continue to do that.
Gotcha. Okay. That's helpful, Carl.
Then clearly the guide relies on and platforms for interest rate cuts, which at the time of compilation, included two cuts in the year, one in June, one in October. So anticipated net interest income is also impacted by that.
Our next question comes from Brett Rabatin with Hovde Group.
Hey. Good morning. Wanted to ask about mortgage finance and know, the mortgage finance business is obviously competitive, but you know it seems like you guys might have taken some share this quarter. Any thoughts on market share gains this quarter and just where you're trying to get with that business relative to the top five in the space?
Thanks, Brett. We landed full year, I'm sorry, full quarter average balances right on top of the guide. So we got it to $4 billion. We landed right on $4 billion. We were higher on ending period balances, which was the impact of rates moving down and call it mid-February. There's a forty-day or so lag before you see the reduction in mortgage rates ultimately show up as warehouse balances. We still sit around five percent total market share, which is where we anticipate staying. The guide suggests the $1.9 trillion origination market, which is predicated on thirty-year fixed rate mortgages between six, eight, and seven percent. If we see that, then we expect about a ten percent increase in full year average balances. Thinking about Q2, we expect around $5.2 billion of average balances, and then we noted in the commentary continued reduction in mortgage finance deposits, which is quite deliberate.
So you should see that self-funding ratio move from 113% to somewhere closer to 95% in the second quarter. Then the last comment I'd make on that is although it's steady market share, we continue to do more with those clients. So our ability to effectively help them hedge their portfolios, help them securitize, and help provide leverage for other portions of their wallet are things we've worked quite hard on over the last few years. So it's not solely a warehouse offering; it's a holistic offering to mortgage finance clients that generates much higher return on equity than we've had historically.
I would just emphasize the last part of Matt's comments. We are not focused at all on market share in the mortgage warehouse. The mortgage warehouse balances are a result of our clients' needs that we focus on in that space, and so we're focused on the very best clients in the mortgage origination space. If that's their need, that's the result in the warehouse. I think you could further probably project that or assume that there'll be a time that if you don't convert to the SPE structure in the warehouse that you may not be a client of the firm? Because that's where we're going because of the better capital treatment. And all the different things that we do with those clients. It's more of a vertical than a warehouse.
Okay. That's great color on that. You know, and then you obviously changed the revenue guidance to be more optimistic on net interest income, and you took away the fee income guidance of $270 million for the year.
You know, if you were to think about the pipeline for investment banking from here, has it changed relative to previously, or is it just the uncertainty that's kind of driving the near-term quarter lower?
Go ahead.
Yeah. I would just say it's growing. It's granular. It's been pushed back. So it's changing in a constructive way, not a different way. But to the question earlier, just the uncertainty, it's really, really hard to transact at this moment.
The only thing I'd add, Brett, just to emphasize the notion that it's much more heavily weighted now to the back half of the year. It's our outlook for Q2 is twenty-five to thirty million of investment banking fees. So the number of transactions in the pipeline continues to increase. The delay is largely associated with awarded mandates and M&A and capital markets that folks have just put on pause.
Which is no different than the other banks reporting so far?
Yep.
Okay. Appreciate all the color, guys.
Our next question comes from Michael Rose with Raymond James.
Hey. Good morning, guys. Thanks for taking my questions. Just wondering if I could get a little color on the increase in special mention loans this quarter. And then, you know, to the extent that you can, what are some of the industry sectors that you'd be more worried about in your markets as it relates to tariffs?
Happy to address that, Michael. So, Rob, reemphasized in his opening remarks that we regularly prepare for a range of economic or geopolitical outcomes that are considerably more stressful than a consensus view. And as you know, those scenarios are directly connected to current and prospective balance sheet positioning. We also noted that we entered the period, in our view, well equipped to serve clients across a range of potential economic outcomes. And then we began specific preparations for changes in global trade policy late in the summer, with a particular focus on implications for changes in policy with Mexico, China, and Canada. Say that the current assessment indicates areas worthy of heightened monitoring are infrastructure, transportation, logistics, as well as just general manufacturing within commercial and industrial. We also remain focused on commercial clients that serve the low end of the consumer markets where you could see increases in prices put additional stress on those consumers.
I'd say importantly, none of those segments on their own comprise more than one to two percent of the overall loan portfolio. And then the last point I'd make on credit is that our multiyear reserve build has relied on a set of economic assumptions materially more conservative than a consensus outlook, which alongside our observed performance in the portfolio suggests the fuller outlook still is thirty to thirty-five basis points of provision relative to loans held for investment, excluding mortgage finance.
Very helpful. I appreciate the color. Just switching gears to fees. Just on the treasury solutions, you noted that you had a record quarter for the third quarter in a row. Can you just give some color on the outlook there and why the growth has been so strong?
Yeah, Michael. What I would say about treasury is that if this is redundant, I apologize. So it's twenty-two percent year-over-year growth. That's all products and services. Cash payments is up eleven percent. That does include FX, merchant, or corporate card as just the payments and receivables of our clients, if you will. That is really, really strong. That business grows at GDP or less for most banks, and this is eight straight quarters of three times market rate of growth. There is continued momentum, and it's very simple. It's in our DNA now. Our bankers don't talk about deposits. They don't talk about they don't go talk to their clients about, 'Can we make you a loan, or can you give us a deposit?' Go talk to our clients about solutions. And it could come in any form of debt, private credit, bank debt, institutional debt, equity, or the like, converge, etc. So when you go talk to your clients about solutions, you add more value and you're more likely to become their primary bank. That comes with operating accounts. And so you see the cash fees go up like they did.
I would venture to say that we have the only institutional sales and trading floor in America that sells treasury services. We all know that's the health of the bank. We're astute on the products and services in that space. We add value to our clients by reducing working capital and improving their operations and also making it safer and de-risking. We developed through our own technology platform and onboarding platform called Indiscio that we talked about in the past. It was easier to onboard operating accounts here when clients onboard an incremental account, they choose us other than a secondary or third bank. Because it's more simple. And then when you go talk to our clients, they feel very safe and sound with our capital and our equity to give us all their primary operating business.
So I would say it's because it's in our DNA. I hope I explained that correctly. On the treasury side and on the wealth side, we're behind in wealth.
Okay? And we're we kind of it's hard; it was hard for us to go all in on wealth. We got a lot better. We have really good people, we have really good investors, we have a great go-to-market strategy, we have great clients. But they were burdened with a lesser platform. That platform was put in place in the fourth quarter of last year for new clients, kind of the first quarter of this year for current clients. That migration will go through, you know, the back half of this year. Migrating our legacy clients onto the new platform. And what I mean by that is it's the digital journey of our wealth clients. So now they have a digital journey of their everyday operating accounts, if you will, with their investments and with their money transfer, etc. That you'll see at a Money Center Bank. It's not an inferior client journey anymore. So now that we have an on-par better client journey than most banks, with really good investors and really good performance and talented advisers, we expect to make real progress in the wealth business moving forward. And we can get totally behind it.
Thanks, guys. I appreciate the color and candor. I'll step back.
Thank you. Our next question comes from Anthony Elian with JPMorgan.
Hi, everyone. Matt, you mentioned in the prepared remarks the anticipated future rate derivative or securities actions you plan to make sometime this year to potentially offset falling rates. Can you just provide a bit more color on this and the timing of it, if it's included in your revenue outlook as well?
It is included in the revenue outlook. Tony, we added three hundred million of two-year forward starting receipt fixed swaps this quarter. That obviously impacts the twelve months. Interest rate sensitivity, but what also impacts sensitivity is being more effective in repricing down our liabilities. So sensitivities are previously modeled at a sixty percent strain deposit beta. We move that up to seventy percent, which we expect to hit in the mid part of the year. We've got about five hundred million of prime swaps that mature in Q2 and then a billion and a half of so much swaps that mature in the third quarter. So we do, in the outlook, expect to try to manage our balance sheet duration to a similar position to where we are today. You will also see a selective, as I mentioned earlier, added to the securities portfolio; we pushed about two hundred million dollars this quarter around five point three or five four. We expect to continue to manage that portfolio in a similar way.
Thank you. And then on the enhanced credit structures you first online last quarter, and the benefits to risk-weighted assets. So you've implemented, I think you said, fifteen percent on the mortgage finance loan portfolio. And then that could be at least thirty percent. Is the timing of that in the second quarter or is that more of a second half of your event when you'd expect to be implemented on the thirty percent?
We think yeah, we would expect that thirty percent of ending period balances in the Q2 are in the structure. And just to reiterate it, the risk waiting for those clients move from one hundred to twenty-six percent. So the fifteen percent already in has created twenty one basis points of regulatory capital.
Great. Thank you.
Our next question comes from Jon Arfstrom with RBC.
Thank you. Good morning. A couple of questions for you. Just on cap markets, is there a way to size the pipeline relative to where it's been historically?
We entered the year with twice the M&A pipeline that we had entering the previous year. That's up fifty percent. The cap markets pipe is larger at this point than it was at this point in 2024. We've onboarded a large quantity of new investment banking talent starting in the back end of Q4 through Q1. We talked about that a lot on the last call. That our increase in full year non-interest expense guide was primarily related to adding new talent and fee area to focus, which is heavily weighted toward investment banking. So, Jon, I think all those factors suggest a really healthy business. And although the timing is somewhat difficult to predict, there's a lot of momentum as you move into the second half of the year.
Okay. This is an annoying question for you guys, I know. But who the one ROA level. I'm not too hung up over it. I think it's, you know, time rather than timing, but what’s different in the P&L later in the year to get there? Is it just is it just your last answer? Is it the banking and treasury fees and maybe a little bit of non-interest bearing? Is that it? Or is there something else we're missing?
I think there's a lot of balance sheet momentum as well Jon, and increasingly so the balance sheet's growing, and it's increasingly productive. We've said for a long time that we're generally product agnostic. We want to show up and serve clients in a way that best fulfills their needs, not ours. And that the P&L geography was not our primary concern. It was more onboarding the right relationships and serving them for the entire of their life cycle. The current outlook suggests a lot of momentum and balance sheet and a lot of associated momentum in net interest income. So pretax pre-provision net revenue this quarter is obviously going to be distorted by day count. So that's roughly five million dollars of pre-tax income, as well as the seasonal comp and benefits expense, which this quarter was fourteen million bucks. So that's another twenty million dollars of pre-provision net revenue on a seasonally slower quarter for us that you should think about as you look towards the back half of the year and achievement of the one one.
Yep. Okay. Good. Got it.
Rob, I want to say—and I know they properly phrased it—but it’s really about the improvement of the entirety of the balance sheet and income statement. We are now viewed very differently in the marketplace as a firm than we were before. Three years ago, four years ago, and certainly before I got here. We did not have the right client selection. Those clients bank with us because of rate, not because of value that we brought to them. That is no longer the case. We can’t compete on rate now. We expect to compete on value, and our best clients appreciate that we may show up with an investment banker on a deal that the deal was pushed because of the uncertainty we talked about, but because you bring that advice and you're there frequently, and you’re highly valued, they don't care about rate nearly as much. I don’t see any stop to that improvement over time.
And then you have fee growth on the other parts of the firm.
And you have credit that looks really, really good. We’ve got peer-leading and industry-leading provisions since I got here, and criticized loans are down eleven percent year over year, and we feel really, really good. And that’s primarily driven by client selection. So I think it’s a combination of the entirety of balance sheet income statement, client selection, and an improvement of our ability to operate and gain efficiencies.
Got it. And then I wanted to say this last quarter, but congratulate you on the chairman title. Just curious if anything changes from your point of view with you adding that incremental responsibility.
Thank you, Jon. I think a lot changes. It comes with a lot of responsibilities, but it also nothing changes. So Bob Stallings went from chairman to lead director. The lead director is very important here like any public company. And so it’s kind of a title, but it's not. What it'll do is look. I gotta shake the board. I gotta lead the board. I’ll have much more of a say in who's on the board, what the board focuses on, etc. But I'm really excited about Stallings staying as a lead director, and I have a lot of immense amount of appreciation for him doing so.
You, guys. Thank you very much.
Our next question comes from Matt O'Neil with Stephens.
Hey. Thanks, Guys. Just want to follow up on the mortgage finance, self-funding ratio. I think Matt said ninety-five percent in the second quarter. Just remind us of the driver of that, and could we see further improvement throughout the year, or did you just make some adjustments in the first quarter, and we'll see the full impact in Q2?
Yeah. We think five point two billion of average warehouse loan balances, four point nine billion of average mortgage finance deposits. So now we talked a bit earlier about the expansion of products and services that we can offer those clients, as well as pretty significant growth in deposits outside of that area. We talked—I think Rob articulated the growth in commercial noninterest bearing up seven percent linked quarter, eleven percent year over year. But we also have material growth in interest-bearing deposits with our core commercial clients. And we’re up three point four billion or twenty-six percent year over year in interest-bearing deposits, excluding brokered, and excluding institutional index. That's while pushing the deposit date. Interest rate deposit date is up to sixty-seven percent. So as we look across the franchise, at relationships where we're unable to earn an acceptable return on the aggregate relationship, there are ample of those that resided in the mortgage finance business where we are paying outsized rates for deposits.
Over the last year or so, we've been selectively reducing those where we couldn't earn the right to do more business with those clients. So you should see us move below the hundred percent self-funding ratio in the second and third quarter, as warehouse balances move higher. And then likely stay a hair below that even in the fourth quarter. So it just reflects growth elsewhere on the platform.
Okay. Thanks for that, Matt. And then one more question. The hedge impact in the quarter, we just saw in Q1, didn’t see a disclosure. Didn’t know if you saw what the hedge impact was to the NII in the first quarter.
It's coming down materially, Matt. I mean, you're gonna see the remainder of the hedges generally roll off by the end of the year, with the big slug, like I said, coming off in Q3.
Yeah. Okay. Thank you.
Our next question comes from Jared Shaw of Barclays.
Hey, guys. Good morning. How should we think about the pace of timing of getting to the eleven percent CET one? Is that, you know, just sort of consistently through the year, or do you feel that there's an opportunity to maybe accelerate that earlier?
Jared, the eleven percent isn't meant to suggest that we would push it all the way down to eleven percent. You should more think about that as a floor. So we've talked frequently about what we believe is a real competitive advantage of operating with the most capital, in particular, the most Tier One Capital. So I don't know that I would look for us to push it all the way down to eleven. That's just more indicative of the amount of flexibility that we have near term. If you look at all the metrics that we put out on September first, twenty twenty-one, and the only metric that we backed away from is the Tier One guide. So we originally had that going down to nine to ten percent. It just feels prudent to now operate with materially higher levels of regulatory capital and, again, focus on real loss-absorbing capital.
Okay.
Got that. Thanks. And then just a little bit of follow-up on Matt's question from before. I guess the hedge costs were, what, twelve and a half million in the fourth quarter. Do you have the actual number for first quarter? It should be around eight million.
Alright. Thanks a lot.
Thank you very much. We currently have no further questions. So I will hand back to Rob Holmes for any closing remarks.
Just grateful for everybody's interest in the firm and look forward to the next couple of quarters. Thank you.
Thank you very much, everyone, for joining. That concludes today's conference call. You may now disconnect your lines.