HTH - Earnings call transcript Q4 2017

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Operator

Good morning, and welcome to the Hilltop Holdings' Fourth Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Isabell Novakov. ahead. go Please

Isabell Novakov

Good morning.

this White, Co-CEO; and Vice CFO. call are Ford, Will the Jeremy morning Chairman and on Alan President me Furr, Joining and Co-CEO,

their we plans including are current statements statements are such risks items These that nature are Before statements business based statements condition concerning please expectations strategy, are and our events presentation statements. future not facts, management's today's that financial to concerning that certain historical of as started, get and on by during subject future uncertainties. note forward-looking

and with required to of Our actual of conditions the the results, statements SEC. annual today, from materially these the recent a statements included most Except by any obligation we including due capital, filed referenced variety extent expressly financial update disclaim earlier a information. those may our discussion result our as report and differ to in and new precautionary report statements, in law; factors, to quarterly

Additionally, is reconciliation this Ford. A like margin be the presentation website to margin this adjustments. measures, Jeremy accounting measure equivalent presentation nearest to before ir.hilltop-holdings.com. purchase GAAP I our which net appendix taxable non-GAAP taxable now, the in equivalent and to presentation, would may includes these interest posted measures certain of on over found net interest at of including And the hand

Jeremy Ford

Isabell, morning. good and you, Thank

per or the share. net For million was $X.XX diluted XXXX, fourth quarter of $XX.X income

During that and net million, reduced and per or $XX.X the resulted in Act the quarter income Tax one-time charge Cuts share. a Jobs passed by was $X.XX

$XX.X share. million related tax this diluted net or per $X.XX of was income impact the Excluding charge

going going Will will by our We reducing expect more effective is tax in Hilltop forward, rate benefit cover detail. new legislation the which to tax

through shareholders per increase commercial book shareholders share. the top on our securities Including Delivering dividends value and shareholder loans, to During by $XX grow tangible from to Hilltop grown earnings million deposits SWS settlement has $XX momentum totaled returned margin the Hilltop able to returns the business value the repurchases. remains overall share and year. build our in mortgage XXXX, our and was and In priority. prior core our X% share the Meanwhile, million. quarter, market

of payable Board per February representing dividend a XX, declared cash increase. of Hilltop's $X.XX a common Additionally quarterly on Directors XX% share XXXX

across credit We losses. bank’s quality are managing particularly dedicated the to organization, regards risk and in loan to the

the non-covered points full basis we bank For net XXXX average on million, charge-offs year only representing loans. of had the $X.X X

earnings solid across pretax fourth-quarter businesses. forward, reflect performance Moving of all Hilltop’s

quarter resulted reduction growth. decrease year-end core and drove million margin. volumes. X% impact strong bill pretax in pretax results a continued income prime modestly non-covered bank’s declined lendings Hilltop home rebound focus a public purchase from in tax refinance with accounting Excluding purchase representing The the XX% million, volume a the income in a improved XX% loan $X.X Securities Through $XX despite issuances our national up by of had finance. on

the turn income. and our profitable I which over the employees dedicated through across Hilltop companies. pre-tax XXXX in credit Will financials. thank all in was the of $XX line in expectations recently was drove and Lloyds experienced is storm losses, XXXX. number ranked municipal low National Securities with nation in this Hilltop advisor financial Additionally, Texas million which one the rewarding to year I'll a for walk seasonal and to our for of now presentation

Will Furr

year Pretax the XXXX income million. year income five. the $XX for for you, $XX.X to quarter the I'll $XX.X fourth equated increase to million. XXXX of quarter on equated from an increase start Hilltop's $XXX.X Thank full of of pretax fourth Jeremy. from XXXX page million, million, the an full

to and In a result XXXX on charge Hilltop’s XX% and non-cash deferred In the a tax review effective full-year between Hilltop. this $XX.X my Jobs bill passed quarter. liabilities will during the reflect Act federal will deductibility tax of that we impact of Cuts and Tax fourth actions of current net expenses. and this the fourth-quarter of income December. was The in certain The refer our tax future these assets in resulted tax for passing XX%. periods, the million stated, resulted of legislation nonrecurring, legislation impact the results income tax and as the rate Jeremy outlook, in will in of rate lower revaluation GAAP our As be net Based expect comments, legislation. of I future

impact approximately million. the For these $XX.X purchase million XXXX, declined positive items the pretax net of by income year. from The $XX full year has impacted accounting positively prior

decline the year, a Hilltop’s expenses, capital that and accounting tier approximately of to the position income to of period loan estimate XX to pretax tax scheduled one with in for basis strong ratio XXXX. quarter expect basis on from continue accretion be $X on $X quarter net the and we equity accounting per impact will purchase impact equity in will $X common between for was average is purchase contribution, per year. the We purchase $X million on million one average million Further, ratio XX.XX%. the The a of million tier legislation points. the

to the $XXX from million Further, prior low growth securities loan did year. portfolios by deposit million ability inventory first Hilltop’s compared $XX runoff leg the offset by to carry the to of additional margin to equated page the support assets and accelerated from reflects in given for by the the $XXX the approximately impact equates of points year-end, the net been to the in to the XXXX. rate securities quarter. markets the risk bank an $XXX Hilltop’s portfolio and future business basis interest Non-covered At during equivalent pre-purchase increased coupled XX points XXXX. million year. to portfolio. discretionary XXXX. increase quarter of increase manage basis accounting loan XX public ongoing the municipal Moving in fourth X.XX% six, covered included municipal quarter. equated declines further of securities million This securities the to adjustable supply that seasonal could flows for of the purchase leveraged cycle. our of mix Earning the activities supply somewhat was of quarter in interest bank those margin of The finance at excess accounting funds quarter, first profile net the X.XX% increase to with The have continues quarter accretion through the of the portfolios liquidity in expected resets and costs HFI taxable interest Further, net unencumbered strengthen during margin the fourth fourth reduce in the our securities loan grew

$XXX by million page non-interest Moving 'XX. to versus of Fourth fourth prior the declined fourth decline quarter mortgage equated originations to and driven income year. in ’XX. the The million $XX ongoing of $XXX reflects or seven, quarter million. income total is fourth by by mortgages from compared decline reduction mortgage the $XXX for XXXX quarter purchase mortgage-related This X%, to market an refinance originations towards our fees declined million production of shift a quarter the of in as

pricing points. fourth XXX And loans decreased from net have contracts, of on market quarter basis refinance the persisted. basis result, the X points a sale as XXXX As pressures of gain to

million, improvements expect competitive by and driven versus increased pressures, the the the by fees $X.X higher sale we on Given Securities-related remain will prior margins short-term in gain pressured year XXXX. rates that continued retail. into

Additionally, finance in drove a as recorded quarter public strong issuance legislation higher December. tax fourth national

matter. million decreased million included services improved by of Moving loss seasonally Fourth during versus expenses expenses and variable the million to adjustment Further mortgage hurricane from of related our in loss quarter page quarter to the segment. of $X.X eight. professional impacted reserve Island other recorded initial million. storm compensation, the expenses to $XXX expenses expenses by positively related XXXX production legal quarter. in to low fourth related $X.X million by business in driven XXXX prior a expenses Non-interest the Insurance-related settlement levels $XX lower released previously certain Rhode were we the million, Included activity and the lower businesses. $XX year $X.X

versus margin our the including of Hilltop managing but and while underwriting discipline credit expectations financing Moving approximately This in and at quality performance loans the or end our by the 'XX. needs. X% Securities, grew fourth clients’ of at to standards covered total bank $XXX reflects the million housed loans page being to nine, low within was loans quarter responsive

is XX. the page Total have by cycle rate Alan interest business increased $X with approximately rates of deposits more we rates of testing to were quarter fourth provide our in beta remain driver and deposits insights certificates deposit. in market it since billion, of beginning this Moving costs the money versus to The growth and active interest have in XX% and modestly market bearing turn Deposit increased approximately we and million interest I'll XXXX. ensure or XX%. to the increase Terms products of the Hilltop’s remain the on deposit bearing competitive. short-term now to performance. is $XXX

Alan White

bank Good the solid Thanks had morning. Will. level and year. solid first, a a quarter we At we had

also is X%, were conservative but expecting occurs of market to Our it on the very little we growth XX%, unexpected at of ended very because underwriting. and up what loan a are and is which X% we competitive, paydowns this below because our occurs

and positioned as our continue that margin cautiously well interest are we we forward. is we as the times in As through we net in, shape are increase go move great to we

it strongest our markets, markets markets. those competitive, three is of are A is Fort it very action loan our on lots very strong other is are Dallas our Worth. where a but market again of at obviously look vibrant you big the competitive. and lot going vibrant it action with If and very economy, Austin, But very is and

Now us. the would that potential be the Houston has for biggest market

oil, see are to we gas starting oil pop opportunities to As that up. starting $XX and improved; are some

positive you experienced difficulty also side see especially know, service making will that of the credits were maybe started have hoping from – We that these move. some some we some

of are think we lot optimistic Houston. have we and got a potential we So in

As from and take Will Hilltop our Securities, they bankers but a sweep said, to our and anticipated. in we far exceeded XX%, what put deposits brought the net we really increase after you place challenge ’XX XX% balances in deposits to we away increased

really good Right are is that. now doing job. about branches, operating pleased and we a are So we everybody XX

what fourth to we focused origination quarter, was go the you exactly We it you what we look expected. at as now In year. our we on difficult. recruiting very and fourth When prime volume X%. for we when quarter lending, expected we it are it Seasonally had close look is is down But very at the came what forward. is really year-over-year the

against of X%. X% down the were industry. so In – up However, our well we industry purchase XX%, X%, to being volume compared industry market, year-over-year the the was and down we to overall that perform was up the continue industry very was

to Our market year-over-year share increased actually from X.XX% X.XX%.

continue that purchase market We of and sales the focus [indiscernible] on that on our to very to times We people market makes a side. chasing moving the deals are lot gain have refi competitive. very pricing it competitive on still from

for the prime to volume and up three our the ventures year are that on Securities, build very prime. profit recruiting. and picture. That which on joint will losses are total Hilltop the going Also, to our will job of and something or we is need and fourth business and very these as continue Retail the and we We to been in lot the quarter, pleased had sit excellent That that customers a on said, a we loan are our us our because drive them. Those bread $XX One our balances made us take worth going that we strong be a have was to now are quite the company. an really been both to volume from where and funds makes volume XX interest picture maintain in Not important good of side with to is and we rate is opportunities and that $X.X worth butter that. to quarter. is Public joint and position with is for two year into excellent doing on done generate gentleman a are retail continue solid in to let – good a on have and have have and finance, last going the we excess market. Hilltop that have the good solid year, for is we benefits which on lending because being we and compete move that we the have use certainly good there a and there, focus to businesses thing The this municipal side monies, side. new positive them able us improvement focus core rates continue they that at for at looked over come really interest ventures, people, so can thing [indiscernible] deposits. billion as [suites] and bit. of we which grow to very of able billion clearing that

weather good Imagine a and for and are time what good we National about liquidity its you billion that luck. and a purposes. when that have has We to and long a are help that in on good good Securities is solidify future. happens $X.X you optimistic businesses when good come those shape. So a all, for results. Lloyds, better, together doing worked All team got count in And Hilltop good great solid little and little quarter, weather

written. continue our We to on premiums focus

focus turn is hard remarks. hard try We and with back back to we and our insurance be to looking They the are our move we at -- move working and on to business. up to. concludes starting people that are at would and marketing how curve really going our that up, trying looking That to continue that my as be of line agents

Isabell Novakov

our questions. take remarks, concludes prepared will now This we

Operator

answer will go from The ahead. Michael question Instructions] and SunTrust. We comes begin Young [Operator the session. now question with Please first

Michael Young

everyone. Hi, good morning

Jeremy Ford

morning. Good

Will Furr

Good morning.

Michael Young

you're change eagerness Why effect maybe evaluating M&A the does kind what to how deal just tax market in your in and XXXX? the do laws of don’t you on maybe in a start the you're seeing

Will Furr

economics. the our also I Well, before, and and it's certainly we of that. And we are be in think the fit diligence evaluations change acquisitions and in the just same we still effective in for said thing rates the patient to with pursuing we're continue factor look tax right going to right and

Michael Young

XX% maybe accreting more M&A, X build where now a tier levels XX% Okay. rates. absence ratio and and higher its the going of common the in be And you're lower we're willing the almost Jeremy, capital let to how to ratio leverage capital tax equity with

a do in draw So, of sand you some at the line kind point?

Jeremy Ford

endeavored to progressive and months and of excess kind And kind for that We'd share dividend been first more sheet. been combine last stay for been XX% organic the it have so balance repurchase program we've we've in for to about our capital what do use that, have an XX excess planning. to we shareholders and where capital then had has those. has kind like of growth upon able that we've you do is capital to our Well, the increased M&A average we a want return to brought a when to of a and that far also we've

think to over work capital we're not we So, lot use for times adding our at the and M&A is I capital to really and cycle of to ability a that. And we deal this excess we'd and just it ability best at don’t do. It's the look done. getting ourselves just We've point. to put that been deploy attractive demonstrate think disciplined full something a and that we

Michael Young

buyback, year delusion million that this just you've issuance? a basis And was but from of a is on kind announced Okay. what offset normal that done to still share XX

Will Furr

repurchased a for year as to little we you collectively, million that look shares It's we've XX done a primarily do past that. was if that's and This all over million.

probably do there price So, stock more. little certainly as well. and we then what And warrants in we'll is bit the attractive I shares repurchase that if that that we we'll think think issue repurchase and a

Michael Young

Okay, great. Thanks.

Operator

comes ahead. Piper go Brett question Jaffray. Please from Rabatin The with next

Brett Rabatin

morning everyone. good Hi,

Jeremy Ford

Hi, Brett.

Alan White

morning. Good

Will Furr

Good morning.

Brett Rabatin

Alan of a guess on ask bit first I good a XXXX 'XXs back Why side step mortgage the from numbers. don��t really you

better you take forecast, for on the year your If margins. but on you offset would continue bit continued looking the in it purchase on be to pressure just sale little maybe seem please? share mortgage, just have a outlook gain like and the at 'XX us that could Can you might give by originations

Alan White

going was had Yes. a in was came A mars 'XX, really question big. you the you everything of or Brett, from for know that year refinance

refinance there have really yes, loss might in we that have then but Now percent we would been.

and 'XX, market back our We where purchases were very MBI, expecting So, that we be we to be expecting a very volumes to did in be. came trying is hear target difficult. we're to 'XX the we're our market, from and overall to very expected what get the with would 'XX close. we're expecting competitive down quote to

and comparative. We to our it's be are so expect going direction philosophy get and there. certainly very share market That our to our

the to of first coming into second. you that's going very just just the is and beneficial, hard, be back is most quarter the then time like that's start quarter desirably First normally, year

Third portion in drops off course. fourth the

think end Now, up? everything do going we're it moves we said, to what with positioned up that supposed we're where if think We do way end off. And all to. to we're going away that okay

didn’t mentioned, the I'm loan with off million XX with source. enter We 'XX pleased I that. this very As

are So, add two over we're to what that entering ventures new joint loan we we to we've try that continue and quality us very to as had important ventures. XX entered which joint with also these offers is

in things industry the moving what that goes, we're just will depending the think industry we I on as direction. is. outperform the right And So,

looking we're So, think like I doing at 'XX. what term I'm for a job for going we to a do good out looking a and year keep it. But in not veer, did stern we'll I'm blow the that's doing

Brett Rabatin

that is us XQ on some you number million Can that strong. talked then maybe a XQ that. And thought your Okay, on business? moving higher was give outlook dealer, Is above thoughts was $XXX it run in Jeremy, kind always exceptionally of about rate you've great. the that on or the revenue broker

Jeremy Ford

that well. seasonality quarter have strongest with it is great. is fourth strong they a And some and the which new done. tax fourth that quarter we really And the the quarter as public with there's security. to finance business business been for is had a key typically that the this, bill, did national really from of issue the And really drove enactment Well, up

would that to the expect but it say quarter be also highest. exceeded So, expectation the fourth we I

the first the we little think you I a careful quarter look next year we the slowest view for is pretty I the I time or And actually if last of think to $XXX I $XXX of a be mean is for still I got number be kind is to should did like quarter for on million be so, securities a about. bit Hilltop's would of still seasonally kind typically. million safe quarter thinking out revenue

Brett Rabatin

Okay, could with your on Can I three two year one loans like would give hikes margin it and it then thoughts repricing rate enough. margin. some may little tenor, of fair just bit probably. on on curious have you seem if some a sneak but this margin, the us was And can one last or the thoughts the on

Will Furr

Yes.

Will. is this So,

As It net fourth the talk margin, we quarter. tax XXX interest was prepurchase if for at about equivalent we look accounting.

of we've they rate our the current NIM we rates to as strategy guidance expect minus with from increasing do three you three, again increases that continue drift very obviously an will and do this guidance our to a be recognize or or previously. XXXX, with XXXX. overtime. north minus with no are, plus diligent point. the And is from expecting do tell plus for increase the would been Our we're would kind increase increases rate we XXX that three. in pressure deposit XXX a will And is I'll XXX perspective. which We or and there to in cross plus modest pricing But

Brett Rabatin

sharing for great the Okay color.

Will Furr

you. Thank

Operator

Olney from Stephens comes The go question ahead. Please Matt Inc. next with

Matt Olney

thanks, morning Hi good guys.

Jeremy Ford

Hi, Matt.

Matt Olney

expenses. with to the want start I operating

in I and still back of some the this about you've much us that what's under run platform. base offer to the how think update managing systems expense initiative, the one you rate in this past just talked and moving is Can come? on

Will Furr

Will. Well, we -- are this is

synergy tell I development process year. the sense you makes think in through technology of places and planning it We kind going organization to those a of perspective are and XXXX from create I where a was implementation. evaluating our in

then the more of that. look Hilltop implementing the can We are But we've talk day as securities in of acknowledge we new process as end about we and system a the rate was at planning large core XXXX a at forward, 'XX. going late a into the expect be will part starting run would to we late XXXX implementation year, an see benefit and 'XX year

Matt Olney

of it. offset that the Anything as is the believe sounds given like Will, to Got there some stepdown? that expense in step versus and as of the 'XX purchase guidance accretion of I a And it we the behind accounting about part 'XX. managements far accretion off run down talked levels

Jeremy Ford

talk businesses as and we will we're don’t look four talk. I'll and leverage formula Yes, are kind for think I accretion let endeavoring I But those to the just find at to I applied it, the you one. think And We're we for we can down. got as operate stepdown. know the a of create necessarily with efficiency. going ways projects minding to -- Will And just related

Alan White

Purchase accounting.

Will Furr

Yes.

accounting to purchase that the noted in we and portfolio pretax down of decline. be that this off about expect implication a accounting from contribution try overall about million. purchase we more the pretax XX and the do kind the year million little the We of pretax runs XX to So, as descript accretion

to offs where net And our to our were guidance we into and the as loans as run XX schedule in just moving quarter got eight. interest and we And six per loan again reflection but in overall portfolio. income that well so, of that's basis are it the a like lower accretion purchase both

Matt Olney

Understood.

Okay, guys. thanks

Will Furr

Thank you.

Jeremy Ford

Thanks.

Operator

with comes The go Point. from Please Bueno next question Jesus Compass ahead.

Jesus Bueno

up the Just fees origination well. mortgaging sales looks held loan pretty down on going? but the in and it it total in almost like is fact Hi, mortgaging's how on and

that? quarter what Did see You again have quarter. some that you could last color hedging around this impacts from seems some you and provide

Will Furr

on is number would I'll the sale gain reported you here the generally gain called on tell total sale have reported going be gain kind we on of hedging explicitly the divided is sales. as to loan by quarter-to-quarter. I sale stable

pressure, we're we So, pricing in been the it's the the about talk has pricing saying again is there pressured. the under and what marketplace marketplace in when

so, rate got are the unit pricing. management down. team a lot before to of you tell focused of said great team overall through prime. how and as they overall do this in they I'll spend spending, manage kind And And revenue we've on of the exceptions we is we've client our a kind pull and time

vigilantly And being so, that is about of diligent maintaining kind and team managing the margin.

However, XXX we under from do expect XXXX. be it to pressure the level in

Jesus Bueno

helpful. going on that's it, to And Harvey. ask from effects just kind of Got residual

some was the it limited in reserve are You to the release fourth quarter? as did Are confident quarter, positive had you impact mortgage. last that and far see impacts and mentioned you you impact to fees see any you as the

Alan White

Yes, conservatively and seen released which ran because the think nor mortgages our any on seen bigger side. loan that really point Harvey any it I'll bank But company, we from one especially developed proved developed the problems either we really us. we and What Those mortgage impacts. in thoughts one substantial haven’t well affected or was either a to say. be. haven’t we in we we of the kind any this at is Nothing

Will Furr

Yes.

said third of continues adequately impacted go that this haven’t in we Prime. where third development that the all be third a the loans allowance feel Just that the like the continue And have We that we that that the was for we mean reserve Alan did bank be anticipated And and the versus through resulted exists, insurance noted that seen took we any the X.X to at I there. X.X we there in watch million we loans the any quarter. quarter, company, we so exposure to quarter. in but born as would reserve the we booked release that in as in

Jesus Bueno

to in mortgage being areas I That's be would you entirely in, a terms or side M&A. mean, you other bank mentioned on just are bank doing something I at can focused willing not perhaps perhaps so If just great, that on of dealer on want even opportunistic, M&A? on the a follow-up slip the I acquisition. look you are broker side thanks.

Jeremy Ford

to that sweeps to our bank questioned be really that No, we plan our mortgage bank bank provides cornerstone from and utilizes strategic the want M&A. focus our our build the company permanent of continue broker having the is financing assets for the on dealer. and

Jesus Bueno

fine. That's

use whole peers why buyback not didn’t thinking guess, and behind? the market. don’t given out what's that relative authorization that, why just again in stocks year. I like position, given your whole I guess, trading, last just thing using well your your where guess just and Just amount? the opportunity there I a seem you it the capital large

Alan White

we at don’t we look basis have and program. it a quarterly Well, on set a

moving and we're during when doing. would the between quarters we're open So, and be to market of just We just it doing periods I kind evaluate it. definitely market want don’t

Jesus Bueno

my questions. taking Sure. you for Thank

Operator

This today's today's now concluded. call you, attending answer session. for And presentation. Thank conference question and concludes our Okay. has

now You may disconnect.

Hilltop (HTH) 26 Jan 182017 Q4 Earnings call transcript