Earnings call transcript Q4 2022

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Operator

Hi, everyone, and welcome to the Hilltop Holdings' Fourth Quarter 2022 Earnings Conference Call and Webcast. My name is Bruno, and I will be the operator of your call today. [Operator Instructions]

I will now hand over to your host, Erik Yohe. Please go ahead.

Erik Yohe

Bruno. you, Thank

future statements. started, inflation, presentation get including that statements and business certain concerning credit allowance Before the repurchases losses, are based please preface as other items not today's such management's impact strategy, outlook, dividends our impacts that items impacts of presentation fact, financial statements concerning during that, and condition, our as future such and are for risks of are of we by potential as note well plans, interest stock uncertainties. These of are expectations statements historical current their forward-looking in on subject rate the statements and changes, events referenced to nature,

materially including statements of quarterly the those annual actual a variety reports precautionary to the included from recent with these our Our liquidity, in may capital, results, presentation factors, due and filed referenced and statements in financial most and our differ SEC. condition

information and obligation new to extent statements Please we any required disclaim presented the note a result expressly as is by to data that based available update this Except preliminary information. the law, time. at of upon earlier

posted common presentation our the may share. non-GAAP certain this including and on at in the measures measures, found per presentation, be Additionally, book is tangible Web nearest this value A tangible which these includes of measure reconciliation equity to GAAP to ir.hilltop-holdings.com. appendix site

to the over turn will President CEO, that, With now presentation Jeremy and I Ford.

Jeremy Ford

Thank and you, Erik, good morning.

on was net on return average assets or per Return $X.XX Hilltop and average was quarter, million X%. reported period diluted the fourth income of equity the $XX approximately For for share. X.X%,

discipline diversified profitability, capital to generated pressure, base we mortgage expense balance continued across the under our market strong grew each of our companies. Although model, and our on consolidated sheet, and focus due still remained business significant

income due to pretax income and grew pre-provision assets changes the income fourth outlook, of pre-tax the year-over-year expansion in quarter, for from loans Bank result materially investment expense Though base flat quarter retained is of expense or X% core return of pretax X.X%. mortgage in provision annualized a the as Bank million in Average interest PlainsCapital from average net deterioration $XX strong down relatively PlainsCapital economic both increased income, a bank's and an inflationary During and generated $XXX loans approximately environment. on the the a million held at in despite increase balances. commercial

Average by which for balances national loan in growth the have $XXX impacted average lending the million if mortgage has not been shrinking market. warehouse quarter, prior would the been decline higher approximate versus

or the result see We demand in loan our however we are pipeline pleased with general are growth of as the on a and standards declining to credit in heightened XXXX; loan due pressure by starting million to of X% bank. elevated deposits factors. as other deposit rates, have both the economy, towards decreased balances Total $XXX migrated average and higher-yielding the outside assets, quarter-over-quarter customers and inside

pleased deposits money meaningful assets have and as similar into are bank's relationships private securities. some treasuries our within We move customers we management deposit from that under bank been

inevitably across deposits costs to income pre-tax and million return pricing to as increased interest pressure X% before due of accretion or Net Texas We drive balances income competition income liquidity. do full-year, throughout the X.X%. market expect a PPP interest the maintain generated deposit XXXX many for $XX in accounting rates to up by average the where year. million and bank and intense in be will grew under on For $XXX assets banks purchase

deterioration not loan signs anticipation credit closely monitor economic in a of show significant we portfolio. that migration our in conditions to could That credit downward in said, result continue do in quality. We asset currently any

Overall, we transactions XXXX. environment optimistic Additionally, see for continuing borrowers results of into to pleased higher banking PlainsCapital remain putting extremely equity and to with anticipate in are amounts slow. we the with and XXXX, elevated rates in projects expected Bank's throughout XXXX, continuing

group of across our we'll in a bankers have start. We growth leaders economies Texas, capitalize and great strong and within on continue the to

PrimeLending, prospective quarter, from rise of limited taxes of impacts and home both COVID-XX steep willingness to to impacted the a driven the multiple in during PrimeLending experienced the decline factors purchase on housing $X the and in existing a including and and There This period owners adversely $XX have gain approximately ability the million volume. conduct before same prior loss industry on markets. in the rates, originated of the that inventory, point were basis inflation, negative Moving constrained XX% by sale fourth and mortgage XXXX, billion XXX pandemic. a year. in transactions, was volume of margin reduction in residual home-buyers resulting interest factors refinancing These the mortgage

the actions continuing two and of impactful undertook non-originator leading to XXX XX% these business team more during or have approximately in overall said, profitable Additionally, help have outpaced mortgage and team and decline trends a PrimeLending people leadership year. operate our to the optimization the the focused year, on to primary added by resilient competitive cost to capacity challenging to out pricing resize needs declines headcount loans origination the the ecosystem. that but our reduction objectives, sales remains already remained That their efficiently. Throughout reducing difficult margins come materially as pressures, mortgage business, volume loan originating has mortgage average specifically

driven net was of income of generated HilltopSecurities of $XX.X XXXX. quarter, revenue income million million by which national compared revenues in to increase or $XX to pre-tax products. million, fixed public fixed be can compared QX, Increased XXXX. revenues as income the an issuance XX% to slow QX, on increase $XXX primarily services, improvements During finance attributed in revenues XX% a by and municipal primarily from quarter mortgage than declined in The more offset

sweep from improve, in continues moderate revenue we so the growth to that our to XXXX. expect Additionally, deposits revenue in

quarters a over pre-tax of margin following first quarter. volatile Financial the million HilltopSecurities results very in improved $XXX trading results consecutive and the last year, generated of For three net X.X%. revenues the

of tangible the capital forth, per with Hilltop book value common Moving maintained and a of X page levels, share $XX.XX capital Tier at equity year-end. XX.X%, strong ratio

Hilltop During million of and outstanding a program declared Hilltop's shares efforts, $XXX new XXXX. and January year Directors quarterly increase quarter, the share stock dividend approximately of million, X% This repurchase Board dividends one of of cash XX% returned per from share, a week, through to through ago. shareholders authorized $XX a prior XXXX, the common repurchase $X.XX repurchasing

organization our a buoyed have we the XXXX challenging entering XXXX. was we lines, year banking in business the of Overall, that certain our businesses by mortgage-related challenges strength franchise. feel Despite though for well positioned

financial is position solid. our First,

strong stay and with base. sources, take invest funding and an through diversified economic sheet cycles, liquidity, a growth allows arise. as our balance business, We and this ample have advantage to of unknown in resilient We believe they us accessible capital outsized opportunities

particular, margins enhance across we actions and, from groups all have Through expense benefit the those economy to recovers. current more on align in productivity executed to combat the higher our as and Second, we within help are base operations expecting market. are poised a efforts, costs. And mortgage inflation we business efficient expense efficiency worked significant to better with rising to

ever are is Additionally, company we more as before. employee feel aligned we engagement than focused that high, and a and

XXXX year be we a believe will In that Hilltop. prosperous for conclusion,

the financial franchise. our solid solid and we foundation, teams well-established have across businesses, We foundation solid a -- excuse have me,

are are to our shareholders. value about opportunities lie We committed ahead that delivering excited to the

With the the to over financials. that, presentation to I will now Will discuss

William Furr

page Thank Jeremy. five. you, start on I'll

to per As to stockholders attributable Jeremy $X.XX of discussed million $XX of common for diluted reported XXXX, equating fourth Hilltop quarter the consolidated income share.

stock As million result XX% shown for full-year shares six, reported or during XX.X year of diluted to as $X.XX outstanding the million share. reduce by on will the common Of shares primarily Hilltop XXXX, income page a holdings May. during attributable offer the successful note, completed per XX-year or of a Hilltop's $XXX consolidated

increased for by offset in page as reductions increase to and $XX.X drove million somewhat in both The macroeconomic $X.X was ACL. million collective seven, the economic in Hilltop's specific deterioration migration. impact Turning modest by to reverses allowance a losses portfolio outlook the credit

of for volatile total the changes yields by in yearend loan migration the as we to over be losses growth credit and loans portfolio, credit HFI the be ACL macroeconomic ratio in credit time. note, losses Allowance million outlook and driven Of trends, of continue for future that net believe of will $XX changes allowance the allowance to could X.XX% an XXXX. to

uncertainties ACL current regarding growth, GDP the inflation, the interest a on be future volatile. Given the could outlook for in rates, unemployment basis changes quarterly and

by securities, equated balances prior variable XX% higher year yields I in fourth driven to on quarter, a Versus rate million accretion. Net interest am offset and by primarily $XX the borrowings. purchase the net somewhat million including quarter accounting income which was $XXX loans, million of increased $X.X or cash deposits higher rates page turning on to by eight. and income

the basis And by third points. quarter interest 'XX points versus margin continued increasing of to basis to improve XXX X

scenario a be to to the moves remains the competitive likely reflects as the the throughout scenario accurate, of rates expect through move funds outlook liquidity this modestly And intense. year. current during whereby for and continue year. as of the If of X% continue higher expand will XXXX environment to of we the and stable and first proves XXXX Our balance remained NII half X.XX% NIM to fed the between decline balance deposit interest-bearing to half the then first very to began for

and highlight we instantaneous sensitivity up of shocks nine, basis which asset page position scenario. represents point assuming in to the XXX% sensitive rate X% Turning of Hilltop parallel chart an asset in the approximately the

X%. net note, to interest the over a next $X asset evaluate falls risk, the income by potential we basis sensitivity rate Of course in increase approximately point parallel the basis this point scenarios. gradual shift XXX As positively XX months, instantaneous million. a sensitivity from and scenario, Further assess approximately impacts analysis of we increase each shift up number XX interest the the through of we

$XXX housing the page challenged the Fourth ongoing in and making seen margins United for mortgage-related to States XXXX overcapacity XX, history. originators fees and to million moved has recent non-interest price of million. levels 'XX fourth income combination mortgage by evolving in equated we total quarter mortgage across terms inflation, of quarter by $XXX materially remains in which the home higher environment lower interest limited driven Moving quarter and driven rates, of have in volumes supply, not to decreased income fourth very the the versus of

mortgage or $X.X quarter, billion by by XX%. year and prior $X.X purchase the billion versus XX% decreased or volumes refinanced Further volumes decreased

loans continued has with been the basis gains-on-sale for points. quarter points parties gain-on-sales margins decline XXX a declining fourth XXXX, multi-quarter During what to of sold basis to third margins XX

sale their versus stable are see pressured, the the been And we customers on down Our paying rate. mortgage period. are margins prior-year have continuing interest regions to our as gain are buy to such,

of to half in We year, be pressured buy the origination first will prefer to trend expect the rather interest rate, to than continue will throughout gain on their lower to mortgage outperform prevailing market -- fees pay sale down continuing trends. rate margins than and volume customers resulting origination rather and probate the the continue

by trading volatile from and books additional income Other marks and improved period-to-period, as million most by they finance municipal are income liquidity, that during to impacted rates, the fixed is increased driven structured primarily interest favorable by businesses, market trends. important volatility across income HilltopSecurities recognize trading valuation results, It of fixed services production be and overall the $XX quarter. can

from compensation was $XX million $XXX $XX decline the revenue to in period. linked and decreases Non-interest variable fee PrimeLending, decreased the prior-year lower turning The of which same I'm HilltopSecurities prior-year the quarter by compared to versus driven XX. the in the at million. in prior-year generation by was period expenses expenses approximately in to million to page

the right production prior-year. upper are in in non-compensation expenses, mortgage declined which Additionally, expenses volumes related of the captured table as versus the in production expenses, particularly the variable declined slide, other

streamlining Looking other to expect compensation efforts improve to across the support productivity, lower forward operations variable stable to our continue remain focused and than relatively our throughput and improving ongoing as XXXX, franchise. headcount we expenses will relating

the 'XX Moving to fourth loan period family in On by third to and particularly HFI by HFI originated versus quarter by quarter PrimeLending. mortgages loans driven in loans the basis, million prior-year stable four a commercial page XX; fourth estate, improving XXXX levels. with billion of the equated ending $X.X commercial to retention of real quarter growth, average $XXX grew one

LTVs to quarter be loans average locked fourth an loans had of and delivered coming the and XX% basis These of the million XXXX, of XXX points, over yield During to average of approximately $XXX months. XXX and FICO PlainsCapital PrimeLending respectively.

year. of the low XX; page the level show to continued in in in net upper throughout made a relatively the graph XXXX, NPAs right, to the support Turning throughout we charge-offs fiscal progress which reducing

shown bank is including the XXXX graph, and for page, bottom credit warehouse mortgage the on coverage ended As the the the lending. X.XX%, allowance loss right at of

total approximately page decline by fourth the basis, into approximately to of the of $XX.X including quarter moving declined billion or or the billion million related quarter versus to and 'XX. deposits X% average Fourth tender ending and transferred level, XX. programs. pursuit balance $X On by higher declined to $X.X I'm ending an $XX.X $XXX yields our our was from share of and prior-year in deposits are bank billion, treasuries billion usage the repurchase have deposits that private million other suite HTH $XXX of

shift XXXX, decision was deposits we an customers While speed interest rates and given higher a with decline, expected to see as seek bearing lag, the customer rate coupled began activity manage of deposit level significant during we to adjustments, of interest fourth costs our the pace. at market accelerated to quarter began to interest

costs basis basis points XXX the from points period. bearing XX prior-year Interest rose deposit in

cycle for by and supporting interest deposit deposit will Given balancing through the competitive we with focused the some long-term our interest is customer continue above our deposits. participants remain rates previous our on date relationships of towards our bearing dropping ongoing for net time. XX% target our position managing competitive throughout intensity liquidity over XX% XXXX expected income markets, move in We higher expected to

overall to the XXXX, supporting market teammates company page our value. our customer our communities of pleased our uncertainty where we we with great that and franchise and franchise, position team across these shareholder the XX, clients, to on of work to We're the Turning delivering to a our maintaining like for remain new there as attracting and times to economy. delivering interest moderate the long-term focused the calendar lot delivered serve, risk service customers rates, turn inflation to a the profile, continues regarding in has be health our

of our for business As our on and respond, is reflects Further, XXXX the adjust outlook to assessment future we market the will current our and the noted in markets our provide changes quarterly table, current participate. our where the outlook as we to updates calls. economy we

concludes for call. back the turn the the you that section comments. We'll prepared call to Q&A our Operator, of

Operator

[Operator from James. Rose Instructions] now is please your open, Michael, Raymond line question Our first is Michael from ahead. go

Michael Rose

well. you're Thanks morning, my Hey, for good taking guys. Hope questions.

reduce about the with or now, segment the base. mentioned just steps a segment and the I pretty cost be but challenging, quarter? point give you've Mortgage how Can right-size on more steps think couple think if to you of the the Right about talk this to wanted Just little an and we're over of we profitability, bit just you you've kind some color see near business of to at taken quarters? the inflection what to next wanted taken at kind Thanks. going should loss least to it's

William Furr

Will. is this Michael, for Hi, question. Thanks the

originate mentioned, trying We'll continue done, sales in our make our in point of office Jeremy as originators, had investments to I profitable focus reductions the as you been to through loans non-production obviously. have about. got staff We've grow was and significant in reach to the the XXXX, forth think done productivity inflection on lot We've previously. talked a we back to that targets gone middle work set area. to

of realignment of where to say endpoint. place in an that We get make strides just area, so it. than a that the continuing I'd evaluate process a more is to continue we're to business we

trends the business basis We'll see here as quarter. to first in weekly quarterly -- continue we really, a the evaluate on, to and basis weekly production

results will quarter. in similar are expecting As the the those to it first we relates quarter yield fourth that to profitability,

seen period; month view. nothing first changed we've has that is in the seasonally quarter a here origination First weak

closer we However, of in expect year, to or start to the second-half the move breakeven to profitability.

inflection work think, we team's has that quarter. But a do done, us the the I challenging positioned So, reach again, first to point. expect

Michael Rose

but system, it on about question, do and you actually then of from of inflection Perfect. And coming move When the excess start back-half either Appreciate the do year? sense kind talked I might pressure. you think, know seems still the of may sale downward here, much better the the to a talked what point stabilize? see how pressure when might hit margin, there color. an the some could still seeing capacity And know gain but on be pressure when maybe -- the out you are you or we've think like about actually others there? you we relief for we as we into be have I Thanks.

William Furr

hard the given, in Obviously, we're it's think market we're to so absolutely I we're playing -- market it's to playing with say. the call. hard

based on on a relies as profitability some sale on relief just expectation remain fees to origination strong. mortgage continuing Our well or breakeven gain as return to that from perspective

we to of moved projecting start rightsizing than will slower the expected. in So, would the But has it year. that the have industry taken second-half improve are of and it otherwise again, we overall from a longer

we're to in on profitability. So, we rightsizing be vigilant toward and businesses cost can to driving franchise, best our be continue around focused going as our

Michael Rose

just give side rate moving bit. Appreciate I might or then would but just I idea there's was consolidated the you given margin hikes. the a was assume a impact that obviously, us bank, the But, it the maybe a up trajectory And on for the funds to Obviously, it. Can levels equation too. flat-to-up be near the maybe basis curve. deposit of think, core you the some forward of the that the expect of at an for margin? consolidated the flat to just Fed at seems peak Fed margin -- little under, in q-on-q, looking

on would can helpful? if be you margin Thanks. general trends just just So, give thoughts near-term us

William Furr

page our and which kind materials. margin I see, range. X.XX are expecting, eight on of perspective Fed as said at of funds, about X in But from to could the you I'll talk overall my comments, we So, see with expected consolidated, an to targeting

improvement to improvement We modest ongoing our NII NIM see -- through and expecting are in the first-half. our

Now, would related higher the have otherwise acquire around betas business, continuing move as I markets expected. and banks deposits. lot deposit seeing in the noted, there in too intensity competition, of our we our we faster to liquidity, to than is A are that

you So, I'd just endpoint. an give

That average interest So, was vigilant base some so to margin was the a net protecting going gives of that But there. the for the quarter. consolidated trajectory a us the a to relationship. sense deposit our XXX, you XXX, we're December sense have versus positive basis which our on around gives and protecting be

again, competition So, liquidity expect in increases modest this NII we're expecting the do year. will the NIM balance that and first-half. persist for through the and of deposit We

So, we end through start in of downward, slightly, second-half, see trend at least improvements moderate 'XX. the do those to to expect the and likely

Michael Rose

year. And maybe Perfect. active fairly guys buyback, then me, so were finally last for the you obviously

economic opportunistic, price, the it to do is expect the you of going or to the just given Thanks. full buyback uncertainty economic if just uncertainty, in given declines Just use there's backdrop? in the you're the the amount be

Jeremy Ford

part Sure. that our I share a repurchase, planning, did we authorized of that. think capital I mean, we so

in go this And think go And the that's so, got evaluate on to we'll year as it you number windows we I this quarter. open best forward.

Michael Rose

guys. taking for Thanks questions, my Great.

Jeremy Ford

you. Thank

William Furr

Thank you.

Operator

from Thomas, your now Our next Stephens, Thomas question open, please from go line ahead. is is Inc. Wendler

Thomas Wendler

Hey, everyone. good morning,

Jeremy Ford

Morning.

William Furr

Morning.

Thomas Wendler

on broker parts in growth fee by just for maybe the the dealer business any there? moving Can to the you a X% provided, into line deeper you XXXX, dig guidance X% little color guys looking

William Furr

difficult investment Yes, can into be the that trading assess. businesses so the business, XXXX, out as look obviously we to banking

from modestly. the in volatile expect quarter-to-quarter, it's We But the environment saw. saw predict we income year in perspective, do in slowly. year exactly goes. some a see that what we as we to to And public first services heal business. services look difficult how it We improvement we finance quarter results materially XXXX. changing is We But we -- obviously our in a necessarily to starting From had XXXX. think see necessarily don't fixed the improves so, underwriting challenging forward,

So, through got modestly improving year. it we've the

carry talked about forward sweet then that forward to into And to our expect carry peas XXXX. we've continue and we --

not the in a environment market improvement, shift So, I call a would modest but for HilltopSecurities. overall what

Thomas Wendler

for the only question. thanks Thank guys. right, All was color my you. there, That

Operator

Woody question next KBW. now Woody, from open. Our ahead. Instructions] your is Lay from is [Operator Go line please

Woody Lay

guys. good Hey, morning,

Jeremy Ford

morning. Good

William Furr

morning. Good

Woody Lay

are wanted loan which good credit the was credit. closer taking credit in I there about a Or, touch six to at all look mean to particular the over any see. months? Yes, at you this metrics thinking how you on pretty quarter-over-quarter, I Are next segments time? were are stable just

William Furr

interest different our clients. We loan for period Different have higher. as are shot entire obviously rates lookout reset

consistent. rate So, different portfolio is that anybody But certainly for the at here. push we we move has it's office a or and this customers rates look who been portfolio, that work-from-home or I customers Again book of higher with Certainly necessarily hotel think is under to think which interest to affecting being interest used be, through. through that, closely we the just the monitor wholesome the as those rates the got are really challenge did seeing given we book because we I to the which that rates business not much to variable floating it clients million, are pass book really continue continue different to evaluating it's what higher, $XXX and like. the which travel. at, has look portions across. The portfolio. our trends rates outside speed But monitor biggest to of than continue that for is -- loan, biggest across The smaller but

And so, on it margin. very the -- impairing flow cash is a it's

watching that So, the we book. across were

Woody Lay

Okay, to the guidance. that's color. then, good And wanted touch on deposit I

or average the year. sheet balance do you of expecting in shrinks, borrowings the would short-term fill size a overall this X% scenario? deposits scenario, think for are with to out X% you this down Under the for look way Your hole -- you the

William Furr

similar balance in Our size outlook kind year-on-year. expects is of sheet the

to will shrink excess modestly. levels have And, down. are got cash So, likely it cash -- reinvest looking but levels. doesn't likely we does portfolio. we see smaller run But see again, loans the will get in in that Those we loan it materially

Woody Lay

That's me. from all right. All Thanks, guys.

Jeremy Ford

Thank you.

Operator

questions. gentlemen, call. have And you concludes Ladies further we and no this for currently today's joining. Thank

You disconnect Have day. lines. your may now great a

Hilltop (HTH) 27 Jan 232022 Q4 Earnings call transcript