HTH - Earnings call transcript Q3 2018

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Operator

Good morning and welcome to the Hilltop Holdings’ Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. is event this note being recorded. Please now Isabell Novakov. would like to to over conference the turn I Please go ahead.

Isabell Novakov

morning. Good

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

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

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

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

Jeremy Ford

Isabell and good you, morning. Thank

to year. a $X.X $X.XX reported the For compared the represents diluted of per quarter share, net $XX.X income increase last which quarter same or we XXXX, third million million

creation. our disciplined asset This growth, quarter’s quality and on value focus are of results representative

M&A ahead integration growth now The nearly early and As and successfully and Oaks are River complete, of strategy, of completed part financial is transaction. The expectations. conversion diversified we our of results Bank disciplined

Presence. give team our us performance the opportunities the new of Houston of confidence Importantly, and pipeline in our recently integrated

This expenses volumes of and year, accretion, reduced $XX.X January increase business. net of million $XX year we’ve NIM program, losses and driven insurance interest Board despite of declining Through share portfolio. a nine operating quarter versus our dividends repurchases versus or million XX% Noninterest XXXX, Under decreased repurchase available X% remains QX lower the first in $XX.X in from the to our loan saw prior mortgage the in the we compensation in and approved and as lower by share Directors business months million overall income X% grew stockholders. returned expansion expense XXXX. through

quarterly our of XXXX. $X.XX on Directors Additionally, XX, payable a Board declared per common cash dividend November of share

prior business from recorded Hurricane storms as third same quarter the the a year-to-date, for period result Our And establish non-performing during consistent down non-covered, a relationships footprint, XX.X% loans. asset included severe and loss LAE was points loans Harvey. less the the geographic ratio highlighted and in year, of were net insurance quarter only $X.X basis total on charge-offs client to million. The non-covered this fell quality as of XX underwriting to XX.X% impact of which talent focus of

and believe we current quarter, the will During an expenses to of matters; the given initiative a acquisition; better put settlements mortgage Oaks these Bank call efficiency mortgage costs in changes of in environment. related had us execution the four our business in the to We of with and with associated including our competitive business. out, position The items Department transaction River Justice different FDIC significant both on the

Moving to Slide X.

quarter results. third the XXXX, our and strong insurance banking business For units reported

fundamental both improvement. were nonrecurring included signs versus of down and showed year, Although our items. two mortgage income segments from results broker- Banking dealer prior aforementioned

the to growth termination second, and a expenses and in FDIC business transaction law of expenses Bank deposit million solid approximately associated loan River acquisition; The related the year-over-year those Oaks of Notwithstanding delivered in share agreements. and competitive items, $X.X settlement very $XXX,XXX the with First, in market.

its with gain This quarter. portfolio. as for same declined remain fourth stabilization a originations in quarter prior Additionally, the but mortgage the was sale bank and volumes in NIM saw believe under we improvement the We some saw challenging quality X% loan expansion year. experienced margin, of compared pressure period they’ll on the and we

income in million. declined mentioned face As actions taking market. HilltopSecurities revenue structured net business PrimeLending finance a tough driven margins issuances. improvement improve did its lower basis, linked-quarter this public On by $X.X grew the in finance as year-over-year, previously, to is partially we see of pretax

largely Our insurance good across of Texas. State had the a weather quarter, business due mild to

was also have ratio moderated consecutive quarter, expense under our third expenses, We and XX%. the for

to Moving X. Slide

As at River in a platform fourth on-boarding existing PlainsCapital of were converted core Bank update, legacy been completed the The Bank’s the Oaks’ systems and to Signage brief has quarter. locations. early employee

substantially, all the of in realized are the will previously synergies target to We save on fourth track these and XX% realize outlined, be cost quarter.

have we management loan and Additionally, professional Houston senior build two to hired the team. one officers treasury out

now and to is leverage and deposit loan drive $XX branch leadership we presence, our And growth. new deposit and opportunities over improved million. able momentum integration already loan larger team are the complete, With in we’ve almost to seen lender base

has the further market, achievable. opportunity is for So and catalyst in about we growth Houston for been and us significant overall, the we are believe excited the this

goal X. platform and growth. a organic Slide operating costs strategic our streamline build for objective the with to and and of ours is M&A foundation A to enhance operations lower Moving to

services currently and holding broad HilltopSecurities. core and procurement PrimeLending areas The the Once executing a operations, are: reduce at and enhancements shared this the focus time are operating on projects of buildout business system include current sourcing company. at and both this the objective. primary organization enhance strategic of experience. Key initiatives client the set will our on that of implemented over costs We will three deliver

We will significant cost enable entire us this We success early believe consolidation of which experienced year. of organization. towards to moving with enterprise, platform are power buying already also are associated in the the procurement and for better have there travel single leverage the savings providers process of the this with a the

in are addition we process of are the and to leveraging our the in HR, makes model our phases such long-term saves, we also this of estate, believe functional and in view better cost real project, on in shared us in department. We of people. capabilities services services enhancements the where the of legal take Areas different sense it finance maximize are as shared management IT, the company. help These will our based all

time of such, require As amount to realizing execute and significant and work before plan the they benefits.

to to future you into come we XXXX over now these and continue I around primarily results through savings, walk will as turn make including financials. progress details further provide to will We view in the presentation XXXX. initiatives, the Will and

Will Furr

River Thank from on months start of The consideration two guidance Jeremy. X, Bank the include the of Further, Please acquisition. for acquisition you, August closing X. note Page the XXXX. that I’ll otherwise, on includes of transaction also contribution noted as results, all specifically Oaks any unless occurred

DOJ totaled related charges number year. X% of impact diluted mentioned, noninterest Jeremy improved equating expense Hilltop expenses significant of of second $XX.X the HUD the integration income on the business. BORO, the closing versus reduction a the staff items items million settlement the period the and and results and As pretax the in prior underperforming to approximately transaction-related $XX with that Diluted certain a $X.XX per reported same by XX% Hilltop negotiated quarter versus million $X.XX of third quarter action share. branches related or These included and and represent or net to basis. has mortgage EPS of $X.XX onetime targeted

on impact financial accounting portion periods. in In the addition, agreed and on FDIC of related further the based FDIC to in settlement indemnification accounting included upon expect DOJ financial the we do Related costs to with the settlement, chart expense purchase agreed final the settlements reflect FDIC agreements, approximately the in assets. to $XXX,XXX section and This to and right we HUD purchase in our the the table. the future FDIC on related the offshore not upon the amortization of recorded impact expenses noninterest

we additional Bank charges the Oaks businesses future. integration further our with market the of and current of The onetime As to align in conditions, incur may the complete River optimized we

the Hilltop net quarter recovery in of a loss net included provision of represents the $X.X charge-offs. approximately loan $XXX,XXX. Provision million During quarter,

previously in the improvement Continued for HilltopSecurities. accruing items of reserved and oil trade-related outstanding gas portfolio and

the Of The with note GAAP XX settlement tax rate rate points XX%. certain XX capital a FDIC, related Basel will during X rate covered fourth a agreed XX%. quarter the This Tier factor. plan strategies period HUD. to we quarter capital Tier leverage receive and with position higher of expect the GAAP future and X risk the strong third tax tax impacted ratio risk-weighted basis XX.X%. In assessment of between ratio DOJ points with and XX.XX% previously impact the effective of Hilltop’s onetime approximately XX% the basis and to by remains range equated effective loans settlement will reflects the Equity of as the be deductibility related upon periods, and to the all the ratios to Common and

and the Moving XXXX. to million equated $XXX versus by which accretion, of third million income of interest quarter the X. includes to declined Net loan third million purchased quarter in Page $X.X $X.X

prior year. accretion versus As purchased the the from contribution loan expected, has declined

and purchase improvement between and XX Held-for-investment equated have from by year equated $X points We interest the pretax of prior the including versus quarter, XX that margin $X million contribution accounting net by expenses the the accretion expect between year, points $X offset per basis to the third somewhat next accounting quarters. basis in income the range purchase higher costs. interest an X.XX%, million $X prior few accretion. purchase yields interest equivalent aggregate income deposit loan loan related points increased and margin accounting-related period. The X.XX% million to basis range will of quarter, XX purchase to over and to Net million of taxable

XX%. Federal our These get our interest extremely XX%. rates move remain favorably of the the focused deposit to over expect increased interest total rise to pressure through net deposit for from and time. as on interest-bearing deposits borrowing Hilltop to as cumulative market will rates longer-term to stable. the cycle continue and margin towards short-term compare been yield the cost beta betas While curve continues levels deposit December Related Further, increase have yields income beta short-term to deposit has asset has increase cost approximately XX%. betas more competitive deposit we deposit cycle through as to and December XXXX, on remain approximately seen higher. costs, from Reserve continues model XX% net The deposit move of the we managing XXXX to continue flatness higher, cumulative betas we more levels

the market more both rates have some in rates we mix activity and clients X%, absolute from above have risen have In seen across resulting market in products and higher-yielding as money addition, shift the cash portfolio. moved pursuing product accounts, CD

rates of in up mix wallet. the this Noninterest-bearing The new the new in and shift been the rate is on portion has clients total deposits of to core While expected deposits gaining the bank being differencing long-term the remains products deposit deposits successful non-interest-bearing make existing of through through market share as on and growing enhancement selectively protect of and XX% deposit cycle, relationships. with portfolio. our focus growing moves greater

maintaining our noted, plus accounting interest points. at equivalent Given minus taxable basis X prepurchased are X.X% net we factors or outlook margin the current

future assumptions based asset Federal shifts our We the across on revisit of the Reserve rate portfolios. flows will curve and movements; outcome to liability yield continue

low-risk, average coupled the securities Oaks, River past liquid both portfolios, $XXX increased have securities bank HilltopSecurities. principally and highly with of of modest the driven earning million, Bank The Over mortgage-backed growth year, acquisition Hilltop by in of in the assets comprised by

sources. versus amount substantially, costs, Also billion for HilltopSecurities XX value year. we’ve On of funding of borrowing modest sale, This core are funding is calls blended basis noted the points. the modestly have than from the declined wholesale with for deposits these swept lower wholesale the the the loans other of $X.X the from which coupled page, funding, demonstrates amount loans outlined of average approximately which of prior held

Moving to income for equated Page X. the million. third Total quarter XXXX to $XXX noninterest of

third the mortgage quarter versus of related declined million XXXX. Third income fees $XX.X by quarter

million volumes third volume total X% purchase which activity, or refinancing the XX%. mortgage The reduction continued the and by came the $XX of majority annual million X% $XXX in environment Hilltop’s approximately quarter period. quarter, the by declined the period. or by to as competitive the Hilltop During versus or $XXX in from prior declined mortgage XX% intensify of originations comprised declined banking of million during our

on during gain XXXX. challenged, are second sale quarter the volumes margins quarter mortgage did XXX the basis points While XXX in of improve from points basis to

on Other we remainder the by and market XXXX. fees primarily versus declined volumes. $X to year in on could Securities XXXX into $X quarter. about by the spreads by expect production a in and sale volumes lower gain secondary XXXX versus offering income the during Given quarter, business. related public volumes competitive the declined margins prior volumes – the as and and tighter structured Compared business million, the finance the spreads remain current market throughout of pressured finance conditions, lower the structured million finance decreased driven did improve finance second X%

million. and severity were during lower frequency $XX came or by $XXX the as XX. low million on related the the basis. expenses Noninterest improvement are can incentives. commissions expenses improved be and Importantly, a loss $XX.X driving period period quarter. insurance lower to the year million Page same during by production substantially expenses market-driven discretionary and from the Compensation-related X% the volatile approximately turning and in revenues, spreads storm secondary lower to for $X to seasonally quarterly third LAE of I’m business were million prior lower

earlier, $X.X earlier and replacements ongoing Jeremy. this approximately to includes quarter system that referenced $XX by of in were related approximately significant costs and million reported As items core enhancements million

clients quarter loans, Moving the driven $XXX the Throughout contributed of XXXX. net of River housed $XXX X% to level the Total have downs interest as closing. as approximately the approximately prior of margin covered deal legacy acquisition million in which XXXX, Page by The of versus have years XX. or high Growth grew HilltopSecurities bank, rates the value X.X% term. book refinanced were grew a year. of market our The we projects the pay and loan risen, the portfolio versus Bank by within of by as bank third million prior loans versus including the Oaks, loans of finalized experienced

Given market X%, exceed including the year BORO to end competitive including impact total the the environment, of growth current we pressures, the loan of transaction. expect

with XXXX. the million close. and our Page by transaction to million the River not $X.X accounted competitive, performance. market approximately Interest-bearing on deposit quarter are increased increased year. total provide billion costs in to XX. we to be for by and XX% terms to short-term rates Moving offerings. deposits remain it rates, approximately have to Total of continued deposits Further the million in X% third versus aggressive $XXX the active to have we insights increase testing interest or versus and I’ll $XXX now modestly Oaks of deposits The noninterest-bearing ensure the more remain $XXX turn prior or rate of intentional have while businesses overly Bank at Alan being

Alan White

Great. Thank you, Will.

Let an you me give report. operating

play strong to for and continues bank. We compares capital favor to in quarter, to First a excellent ROA year-over-year. of liquidity all, with our in the asset the quality being X.XX% which continues shape generated bank nicely the favorably year base, perform strong this very our for

and BORO. which And Our loans that’s grown include prepurchased compare there. is compete continue year-over-year, to and that interest accounting our we X.X%, margin net was have and up does favorably X.XX%, X.XX%,

Our loan really to quality, very which is I strong. emphasize, want

be that excellent. strong position is think $XX.X We and in billion total to seem able and the and and to money relationships as $X our well, lending our quite loss our of reserve, non-accrual we do have portfolio, standards of which quality, to have we move loaning million we we excellent loans forward. handle I any not and customers, that of continue We’ve assets at to That’s put Hilltop. on loan because think to an X.XX% in the continued

the have growth the would we also deposits a do exclude that That Oaks, of X.X% program Our would Bank but River from year-over-year. seen include deposits deposits does from HilltopSecurities have. that come gained we it it

pleased deposits, the deposits loan continue of production which office total end and quarter. we’re with. noninterest-bearing continue very XX% we Our branches to one And operate third of remain at strong XX at to

We’re operation the very the of pleased bank. with

the of should move to struggle Volumes At really like the we has I to the that that year-over-year, the I continue just our as companies about in the going on People this has I it’s strength profitable in think quite we do do the on really PrimeLending, non-refinance to X% were necessary. up, has in of mortgage Margin which third business future. sale. company, and things to the under how off continue taken which across can part competition. I’m mortgage to country, say we huge of anybody think primarily competitive that forward been point. quarter, make we don’t it because environment pleased many very from to at gain hand know really we and purchase it it makes away that of continue that a difficult eaten the a made sale. are because gain need environment that but

appreciation is pricing qualify might that inventory is too but not then everybody for think people also and thank the environment a as lot are a that markets a one I of maybe bounced However, continue anymore, quarter, expect. the very affect be, rate the that we didn’t I which something market. because in price to And think did out second back from And of third of to the as affects for guess, no of loans I lack want unfortunate. competition quarter say where we kind in of work business, positive, us in lot it I us. the which able where changes, volumes to we I which will third lot is a quarter, dropped means off, that. on of we the by But

have – volumes. to forward, our So as move we’re going watch we we’ll to

on on gain to our going to continue We’re sale. work

we a to But on to make move And to lenders to business, safe offers entity that there to able million the bank $X us related mortgage starting done of fund loan a to we’re out the side, warehouse quarter. looking banking business. to try because good some these be that cause we’ve the and a or much that have the is of about mortgage XXX billion A helps put or not We’ve things this to strong in XX lot a – that non-producers. so not closed positive position supported is market – mortgage to to more able eliminated a a ourselves share, holding are a them transition of to there branches companies that $X we to certainly, because are lot income stronger one, charge tight that company for business. do to place loans, have about allows PrimeLending do be able by it. environment it strong $XXX,XXX and

that feel market about been quality those in and that new attract same with mind, officers released standards – XXX XXX that that XXX to the officers recruiting, of So gotten, been line that that we’ve share, the that about help meeting out can we’ve us require. we’ve gain loan XXX our we’ve loan able we we weren’t of

in compete upgrade position out branches, to we We’ve we’ve our able and and been to added XX continue there go So new as to staff. ourselves the this. through business we’re

doing, I about as provide. what professionals shake we’re – advantage opportunities good comfortable that this and we I PrimeLending try time, feel does been doing take our And about feel before. the are try feel that to pass of continue this will have have I good They costs compare seasoned We through this much out continues we that to to the our it. who as to We long people fees. raise can.

pretax helps volume also ventures We we new we something which quarter. for At We operating think generate was our is a quarter the than five did were with with joint us margin, as – which third have I better second go lot shooting for. a forward. run XX% builders, HilltopSecurities,

Houston. group That jump people so finance continue of XX%. up one did income arena. about nationally they the off that They producing Primarily, out the public we district hurt of standpoint, often we we’re big considerably. their and utility actually is about And open that public of to from We because but that’s municipal on are down finance an that people, own X%, off were the reasons struggle market would office. a lose is

season, picks up. We’re public normally certainly now that think as And do. will where come we into we moving the back I finance from

as Will strong, improvement strong, certainly cash, good right move. of in remains we’re It about us. worth $XX securities said. lending which seeing area helps is We’re and our is managing structured Clearing billion finance

to I core $X.X got and for think one bank, bank billion the funding bank using thing funding. is that the keep in funding now, you’ve right HilltopSecurities mind, provides of for the core about

to could it $X.X up billion go we I could think use.

billion helps We’re of a that that’s loan three-legged line, call PrimeLending using we it and fund that stool. us $X.X

so had that we So, it is we the funding very get us, At important it provides insurance that company, to that liquidity company. a the good and the quarter.

because mentioned million Jeremy last than year, Hurricane which took we completely of ratios $X.X different a look our that loss. good, Harvey, As

areas we has and what that good stays away and an hope us all good into profit there it we So, for a earnings the a move quarter, in fourth be as in Nature be and proves make past it the quarter to quarter. Mother did we look

report. So Isabell. my over is turn with I it I’ll And that to that, guess,

Isabell Novakov

prepared concludes We’ll This our now questions. take remarks.

Operator

[Operator Instructions].

with question Brady go from Please KBW. First comes ahead. Gailey

Brady Gailey

morning, guys. Good

So we didn’t see any quarter. the buybacks third in

I’ve your buyback look got on front? You stock to this imagine the all times tangible. now aggressive one at be will you quarter

Jeremy Ford

So cognizant the about this without actions are we are from of environment. considering what well we quarter, cautious selloff share the as repurchases for want far trading, precluded repurchases, as doing us do as some to last we we’re then we had doing share that corporate some share the very is And actually Jeremy. quarter repurchases. and Yes, given we’re where for the as obviously

Brady Gailey

you would times your other Okay. not that be And one there back are tangible? stock any at reasons buying

Jeremy Ford

no it there’s we I we be laws. open abide have we by no, than securities I an other window, can’t reason in buy to No, – don’t wouldn’t

Brady Gailey

And right. Jeremy, picture. All Okay. of bigger started company the about you by then talking kind

like focus Whether like so any quantify services it’s mortgage. with there cost your just going number Or the ratio you a certain any more whether way of to what’s Is how in some coming what about could sounds out? color model, think produce? there expenses are efficiencies on Sounds efficiency much over Is in way it you will outside saves, of us on ranges shared a come your little give think time? that on there that? to

Jeremy Ford

This quarter, we’re that. not in do a position to

We’re next not planning articulate we do out And laying to that. today. we’re quarter, plan what do to here

Brady Gailey

And then, All I’ll think company River that including Bank that’s year this should growth be loan right. say of Oaks. I The for the and X%

The you talked if X% think Oaks, organic X%? loan growth or was River means, about, I think, X% range that to of like past. I it I the And X% was So to in closer we’ve back know out Bank to

right the So is to think year still to range next like about or do think X% X% that way you XXXX?

Will Furr

you’re I X% it, think is right. as at I look we think, correct,

part We are that’s the some our of our other higher of projects, that natural comments, lending kind And tied to some up construction seeing, than we’ve conservative is my the as I approach seen and is underwriting. paydowns closing with timing net funding it some of then driven of that by some of of historically and that business. mentioned in in

that mentioned, I the are kind include, going well of in kind our as Jeremy of assessment And so I XXXX call portfolio at is we given year of your think and quarter. outlook expenses January as loan guidance look fourth out full the as core think provide outlook, if will will but year, appropriate where we we where next

Brady Gailey

I more comments some non-producers. on the you’ve still the as efficiency done one Is there heard then the then get with of to work And right. about All what in your side. and some Alan, far on mortgage? left just done branches upgrading and as rid side all mortgage expense talent be closing

Alan White

at end don’t we first we Well, more. do continues always that’s I or light see the think of to the If tunnel, first shot. the deteriorate it can level,

what So that’s see we say shot. would the take to happens I’d of we like first shot, second the before kind

Brady Gailey

Okay, great. Thanks guys.

Operator

SunTrust. from next Young Please with The comes ahead. Michael question go

Michael Young

good Hey, morning.

pull share bit occur if on and kind events point to could the understand subsequent we kind that the the how much settlement this on all wanted was a gains little of Hilltop investment? the of opportunity trying lost a the to versus quarter, the the items just that Just HUD DOJ And with that onetime then gained see of well. in captured termination as partners on settlement quarter, finer like

Just pieces to put those trying together a little all bit.

Will Furr

Will. over impacted time. is expenses we of overall EPS transaction Oaks affected $X.X deductibility. so by position through River in million or settlement $X.X Bank a this had a HUD settlement The DOJ, The that it, net there of I included is previously and tax will million. then accrued earnings kind Michael, for terms go million million $X.X We pretax potential impacted by and of integration-related and tax income by the were pretax $X.X and in – quarter, the that’s – impact

deductibility has reached settlement, we changed. that As our opinion on

occurred exit asset agreed deductibility. our as a FDIC during we for after-tax. income FDIC or fourth But impact similar known HUD. million it outcome, quarter, subsequent occurred accrued obviously the yielded indemnification activity the so So the of impact expected on of was very quarter third approximately pretax amortization settlement and DOJ, of all final $XXX,XXX share to settlement which reflect actual did law and $X.X mentioned, we basis settlement, so in there actual Jeremy event all net does – a – the The on the position the our for

million in to And related do on our investor think quarter. FDIC highlights future I been and X were non-interest the approximate from third items as had of Page we the expense HUD as clawback as called the So quarters, had worth then, approximately that don’t going second in has agreements those we’ve expect and were it’s a as FDIC recorded amortization forward. the all recorded noting booked during and in first quarterly on we basis DOJ costs the comments, of recognizing QX. my booked $X the the been out in well prior we booked such, the expense $XXX,XXX for I financial that on related item and/or been amortization through expense in and And of indemnification and any said that again, to an reference quarters.

exist So to indemnification, the million which not go-forward approximately clawback, amortization related a and year-to-date, $X booked basis. will on

Michael Young

Okay, included on consolidated financials? other the in that’s expense

Will Furr

Yes.

Michael Young

booked Okay. fund that just one be Is the opportunities then, gain. that And in to last going the the in quarter? fourth

Will Furr

the will quarter. in be It event booked was a fourth and subsequent

Michael Young

provide also Okay, got other rate And color lock a Any fair the $XX kind you then this the structured charge. that’s past. were adjustment by there area it. the been the the was like And interest in just can one what in mortgage finance, commitments, it been rates one million on an then, quarter, well, of moving I drivers? impacted in know of that’s on kind value

kind any how color rates have can So on the provide of into this you played quarter? results

Will Furr

rate basis And the real the at loss you there locks charge volume versus didn’t one. Yes, quarter. we so, about at kind as volume, value is of as as in I had the look the at look based rate the again, markedly points. value But couple we of $XX.X driver million interest look move – of

declined you rate volume loss declined if period the in so rate the for So and quarter in UPB line with loss pipeline the overall of the overall declined. the will

rate secondary particular more that in that’s structured decline market asset that can structured And really spreads. is linked say, the be an volume it’s and just driven. rolled than driven. that’s comments area as an forward on volatile an did decline, improvement then would see and really quarter given in of value that’s I mentioned and finance we volume the I my finance, asset But So driven

volatile seen so over have predict. and We move back to stability, it weeks that. have fine seeing any last the That said, to We the more high-level on point on kind XX-year it’s quarter-to-quarter, couple of of so it they we it a highs. that be the are off put stabilized, seeing difficult aggressively albeit think pulled kind be but do difficult a of and quarter-to-quarter, will can

Michael Young

HilltopSecurities in basis. this in the rebound up a trying decline still in of quarter. is kind nice saw over-year of on full is give kind case Obviously, normally you we outlook as confidence kind lastly, XQ that still public kind for in we you outlook of finance? just And guess, previously? for year- then the of provided does see still the finance the But to that seasonally I public that pick And year stronger Jeremy,

Jeremy Ford

there, the XX%-ish million for single-digit revenue is answer in what $XXX The I with year year. margin will to we’ve yes, given net for and high which just end the previously, the X% in pretax stick

the that favorable moderately is to fourth quarter that and finance a be think the third will So lot business. the due more seasonality quarter than I public of of the

Michael Young

hearing on me the some look Thanks. Okay. all call. of forward That’s next details to more from and the quarter

Will Furr

Thank you.

Jeremy Ford

you. Thank

Operator

Compass Gamaitoni Please from question The Point. comes next Okay. with go Chris ahead.

Chris Gamaitoni

taking for my Thanks morning. Good call.

Will Furr

Thanks, Chris.

Chris Gamaitoni

have approved? buyback Can than you you level is give the thoughts price us bank potentially your obviously you deploying very and underperformed. is your What currently on larger a capital a from stock keeps high

Jeremy Ford

type have hasn’t cycle, those M&A deploy the way. I sizable towards more think We coming that the the a opportunities. really excess for for powder be years believe going to market view of look appears as value. there board, the of our market and us our at having Chairman’s highest we been we is be want in market, capital to is dry over M&A over our last the And couple we and think that to to capital

share the we also this in Oaks interim, did the the with and year. transaction River of are returning we Bank the repurchases The in dividends through capital shareholders so to of And and form that

If returned XX% between the to share return look we about repurchases. year-to-date shareholders dividend you

Chris Gamaitoni

growth above early your there you’re a loan thinking a mean just seems which bit, on is but little is about growth you – Is it the of down will more be this, loan like caution? there is for growth coming your it’s capital. more given profitability, payout too ratio conservative you’re because if like side being a building loan way underwriting And I ROE if

Jeremy Ford

what endeavor. in spend is going when we and current largest growth Well, growth organic factor we think so the kind to period think be evaluate what loan capital-intensive – we earnings. our our of We on we capital in factor

we the what’s environment, and and are pressure what forecast look timing M&A we we’re kind like. in But and thinking capital trading look what’s and and And built and are and So could factor to capital. of where lead the say, the turnaround with then look the ourselves the excess turnaround at earnings going to we us certainly we we the had think that to our deploy in. I and we’ve that that business mortgage and that say,

Chris Gamaitoni

for call. much right. taking my you Thank very All

Operator

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

Matt Olney

morning. Thanks. Good

Jeremy Ford

Good morning.

Matt Olney

some XQ on seasonality also there’s I back around there to in in last to to the the year seems code tax appreciate stronger broker-dealer like some the quarter go XQ. were some points fourth Want of revenue change. for which the unusual items fourth discussion there, the quarter. versus But

that $XX to looking like that looks million it last from in year XQ increased segmented data, about revenue So XQ. the business

quarter? sure make at good just a look the this way to in I that’s business So want to fourth year-over-year still

Jeremy Ford

point, great. revenue had That’s about business be in going $XX quarter. a good million and I think that that to it’s this don’t We past

can the that, think but… just up but it go quarter issuances in I fourth from

Matt Olney

Okay, so increase, year. you’re Is but we saw fair? nice a last saying much as that not as sequential

Jeremy Ford

I fair. think that’s

Will Furr

impacts. offerings fourth issuers in of we are lot to – a Yes, quarter is And kind tax public mean, the tax general view at point there, given think to again, just the think I rebound into and I pull be last rate. the year going of I really effect act same saw finance on

Matt Olney

flattish to Will, sounds core Okay. beta Understood. you expect like decline year, the margin but have still a it you on NIM. And then from expect commentary, deposit

the keep mix with assuming should it core yields increased So up Or kind of something are shift the just you or deposit loan consider? costs? is else we some that

Will Furr

No, I climbing the kind think levels levels. �� not that – XX, we’re marginal to increasing and of in betas our model our expecting XX of yet at think towards do we are they’re direction. models They are I betas

And of deposit seeing betas the so increasing. impact are we

I comments, that and pull the see offset. as kind as, of do money kind would and my But asset beta we have seeing through products. market CDs, expect versus savings lower clients some also DDA as term for your We’re seen shorter-term we virtually point, of longer look other mentioned we to more those as yielding in out from well products appetite candidly or and

think I rate cash rates it are. So it’s stages cycle a what of late and – clients is of about generally stages later becoming aware where more

we well So the see increase basically both as some portfolio asset shifting to do impact causing offsetting as an repricing. beta

Matt Olney

like you are over mortgage the to It that positive recent Thanks margins Can in pressured, going if And compared in the the it. landscape but just in stabilization on saw guess for there third what sounds business. to Got over any you see summer? signs I Will. you elaborate I’m the some then competitive curious were of signals this? quarter. weeks

Jeremy Ford

Yes.

are. we think I

that size. other lending. We to also have several lot out our generated red a seem there performance. their us comparisons being warehouse by companies of We be indications of national there’s of That’s the companies that versus outperforming are against because ink some indication, to had but financial customers We eliminate all an have them. we some

red because Volumes Christmas. is but off the off the not of fourth kind quarter are takes ink, going fourth a December is because think everybody end to tail traditionally be in them of the Some for quarter quarter good. are quarter fourth in I

a better to going gonna up starting to able be But So the quarter we’re where of. that. progress to and to I going fallout think you’re continue and I might – towards little make see line bigger think all see be year this are we we then

to try get and to officers. continue top those loan We recruit

We ways we can to to and costs continue try look cut be competitive. at

trying organization thing to we’re of will it So I advantage turn turn. set it and our think take when this to does in,

Matt Olney

you. Thank

Operator

go Raymond The James. question next comes with from ahead. Please Michael Rose

Michael Rose

are you how doing? guys, Hey

Jeremy Ford

Good morning.

Michael Rose

your just to Alan, wanted comments. Good. get

other to expand planned announced the the of you sure, a if It guys large to And yesterday. thoughts are from You Houston I’m strategy if optimistic. get there. on just Texas pretty pretty have impact like seems sandbox. you you guys? that the same may the wanted a one just So in banks guys to market? Houston not your standpoint deposit But wanted slide see

Thanks. Just wanted that announcement an if to impact? will see have

Alan White

you that million people impact. any We’ve I and good live won’t know. I Houston that to to an It continue don’t if have there. know in have And affluent to there look area. been are for grow chance four banks got we’ve down don’t pretty seven got lately opportunities.

there. opportunity moving for of you want to everybody. the changes might is us. whatever people and Houston been I an Lot Lot lot of think creates and it opportunity a There’s I of around. down So industry that think call in for banking acquisitions

doesn’t as what have that any yesterday us. As on far announced impact was

Michael Rose

our buybacks then back circle Got authorization before there a beat sort it. why And maybe more the your to on dead But expires actually just reason horse. any you one is guys of wouldn’t in finish January?

Jeremy Ford

I that’s that’ll think be Well, volume not I limitations wanting nature, the and repurchase, to on practical share it the first, price. a I conditioned our mean. mean, impacts do obviously

Michael Rose

taking for question. Thanks my Okay.

Jeremy Ford

Thank you.

Operator

question a ahead. Okay. go Please is follow-up Michael The Young SunTrust. next with from

Michael Young

I follow-up the but to generating previously on about of how benefit? know profit. the I to the of occurred and did. trim one wanted that you yet business the maybe quarter, of to just guess, ask volume, trying this kind curious people that versus the of Hey, talked And already who in how not when repositioning mortgage you much kind seeing were with numbers the much are quarter of Alan, kind come? during of is that we repositioning kind I’m still

Alan White

I lot what start to third you this do and going really the are don��t end started you’re seen a it. planning and you think, we’ve the evaluating. back second as quarter, We of quarter start

getting at You that producing volume, these not profit. large look people any we’re are

as seen purchase see to from on business. improve know that that. benefit do quality the really called bringing any a they’re that and $XXX,XXX charge it takes the been quarter officers to to we’ve loan new let stable thing benefits as loan far – we out, really gone bunch allows non-producers haven’t took and volume while but pleased some officers and an and of our will loan the the officers, as as go, we and start so they before with being generate the little through So we’re building we as But of far us is we’ve that able able this to

We’re XX% purchase business. doing

than anything You more do that. can’t

on And going going have see the to shakes that. share market gain So to and we’re out. we’re continue market build to to to try continue to just and wait how

the to to going have how see market does. We’re

seen And of so kind I not think where putting any But and we’ve we meeting. we’re the on are. impact this, place things yet but that’s into financial

know. increase basic standpoint implemented an in as from people far that seen but have as we’ve stuff We that

Michael Young

noninterest the still some There’s expense so base that? in fixed still Okay, be should down. tailwinds to that business coming

Alan White

Yes.

Michael Young

heavier in but the just Okay a had just particularly Can the loan you versus just about has in than maybe beginning industry related lower year, you the space, Alan. seen of at And more Obviously, where the perfect. CRE talk competition, big been guys. we’ve much to across lower a production paydowns which you maybe probably little just obviously the bit on hoped been side, the how lot has competitive for landscape?

Alan White

talk And year, to to our thought again, first will going up the had from underwriting don’t as give maybe where anybody we’re down do, is our guess X%, guns. trying It they we’re listen. the not seeing been competitive standards, so sometimes to I’ve I out sticking of there. you we’re all you I down but I to

the to really any going bar. funding paydowns. of last the not got and pull come loans the – And also million been are good their probably paydowns, back own the Now to problem after is don’t about loans of year, replace we’re in have made and those our those we’ve we’ve The construction loans we’ve they start loans pretty and sizable million of equity but but all on there so got those first that in see some to $XXX use take down we’re to had going equity. some construction days, made you $XXX out XX to drawdowns the has worth

see that we’re been going do loans good know, markets we’ve really it. so that the So the some some benefit making to good in to we relationship of loans really are people and

paydowns, maybe X% the think we experience thought going where lot that, and than get you’re interest trying going is what and and I fixed seeing finished these can I rate projects are while what’s add in and X% the we’re are number they and to a is Now better causing number, experienced a be of into these rates people and market nonrecourse a secondary paydowns get to these of the financing. are up might back

have play can lot to seeing more there, do, don’t got make So off. but and to you I up we what going think movement would a we to some we movement somewhere just understand like, do as to just are they’re trying we and we make to it’s it up else. try quick it as

Michael Young

sense. Makes Thanks.

Operator

this conference attending today’s Okay, now for has presentation. concludes question-and-answer session. Thank our The concluded. you

You may now disconnect.

Hilltop (HTH) 26 Oct 182018 Q3 Earnings call transcript