HTH - Earnings call 3 2023 | Hilltop Holdings Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Hilltop Holdings Third Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Erik Yohe with Hilltop Holdings.

Erik Yohe

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

Our actual results, capital, liquidity and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our presentation and those included in our most recent annual and quarterly reports filed with the SEC.Please note that the information presented is preliminary and based upon data available at this time. Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information.

certain value including per includes and common presentation book tangible share. this non-GAAP tangible measures, equity Additionally, A reconciliation this of measure posted may these our measures to found on the the in appendix at to website presentation, is be which ir.hilltop-holdings.com. nearest GAAP will I presentation the CEO, turn President over Ford. now the and that, With to Jeremy

Jeremy Ford

the The X.X%. per this period over third on was sustained and continue teams average for position Return on I each to income quarter, trend grow income PlainsCapital Bank partially normalize management. have rates our resiliency and generated the can was was strategic this we commendable. was consolidated remains average paramount needed billion. For realized average been franchise this dedication to uncertain solid the nonperforming assets estate manner.Although and requirements saw as share. continue remained deposits a and quarter This in amount second reported pipeline, term.For $XX.X bank, slower costs up. assets, the impacted to the negative has quarter. our on from strength challenging by of pick a of profitability net bank credit pricing in million stabilize, of book $XX pressures risk Hilltop business. the continue quarter commercial growth whereby we of proactive stable pretax and the minor decline organization and believe to a transaction client for measures, the Higher bank will of Hilltop our stable assets judicious in real favorable we the $XX.X should and diluted net borrowing Hilltop on return $XX billion relatively particularly equity same relatively a quarter, of million X.X%. during X.X% return at and Average had credit produced in the the at reduced Average bank rates borrow within in long or until for initiatives volume expect migration, representing Credit $X.XX escalating adaptability were despite a and recovery our the to increased conservative approach and assets and our equity activity, the in with environment paydowns. loans of quality market liquidity its interest quarter value offset environment

loan and the accounts, see in continues in deposit shift We to compression increase guidance. XX CD continue from basis given expectations a migration perform Overall, softness our NIM to deposit point prior to which line deposits increase contributed a and is mix market money in despite the into noninterest-bearing This with well in bank cost. pipeline.

contract sheet do managing we to tightening being by expect profitability While focused line balance the thoughtful period, for margins possible, and appropriate credit a business about bottom on expenses. down risk remains the on where

rates increase given mortgage in the resulting rate over XX-year Moving the The industry mortgage remains PrimeLending. decades. residential and the highest pressure, to two under in

and Additionally, collectively have other to margins. sector.These retail several lender of exerted optimizing homebuyer approach judicious loan prices low taken staffing substantial levels, operations weather sustainability. brick-and-mortar measures a on focus corporate on include and capacity expenses has secondary and and factors strategic housing, resiliency PrimeLending and volumes, surplus challenges, these tactical persistently utilization. of home origination a a These To to variable the negative and include mortgage dynamics ensure reevaluation within supply a pressures industry confidence elevated

points, of a relatively $X.X was XXXX. quarter on from billion prior margins, third quarter expenses stable business XXX evident in the from in lower the in year-over-year to period of lower basis gain basis the volumes of XX% Gain our second down initiatives volume, benefits our margins. and sale at during these on decline period We the though origination year. the in despite same PrimeLending pretax and have begun to XXX margin points the see originated by the in loss sale

the on $XX the margin force same that down higher than related from fees focus was as as this the are year. a profitable can XX% to on in from This origination quality is costs mortgage PrimeLending XXX basis difficult have prior period trend on While is year, its cost gain continues lower more or increased borrowers There market. resizing positive to sale rates. mortgage period reductions, million by choosing still recruiting the to previously sales fixed points during XXX points Notwithstanding the buy bring by volume prior the they directly efforts originators enhancing to in declined mentioned. loan basis

profitability the addition that believe us margins In increased helping through undertaken to changes challenges, when will recovers. industry navigate higher the strategic we and position improvements PrimeLending for near-term and

benefited last revenues to and million leadership an Pretax in profit in higher third to and quarter the $XXX margins increase favorable contribution quarter. due expense generated We short-term business. the businesses, higher-margin improved income rates. that in year's $XX associated compared of sweep have team on encouraged revenue our our during from million to with has are primarily from confidence net of trends income by HilltopSecurities the current pretax

finance leadership the Florida. benefits and fostered team testament have housing business state performed year, state volume relationships the businesses. exceptionally more across the has producers HilltopSecurities well reaped housing of its of highlights certain structured is This Additionally, our with different talented from and a notably they our to this most quality agencies. programs, the which in

with by Page Moving share XX.X% of per capital maintains our book common tangible XXXX levels value to X. equity ratio and a from robust capital Tier increased QX Hilltop $XX.XX. to X $X.XX

businesses, illustrate hard of have sheet franchise quarter's our industry work securities capital mortgage conservative strength In balance durable and this and impacting a as results declining grown adversely our team. the Our bank and again headwinds by value profitability. of summary, result Hilltop's ratios book management, tangible and improved our while are the

We I Will the that, will position will balance clients sheet to to over turn discuss strength to serve of prioritize and our financials. the Hilltop. to now continue With the our best best presentation

William Furr

start Page I'll X. on

by As and discussed, to XXXX, been point executing $XX reported through $X.XX coupled address Hilltop to the Jeremy metrics of loan million materially to yields changes stockholders ratio to period, impact acutely credit the most results ACL the cycle. $XXX.X resilient of quarter at X. X.XX% work of as highlight macroeconomic diluted credit attributable for million and coupled income million. of per To successful of for Quarter's an Page in share. prior million, credit to allowance across we've consolidated total the allowance, losses offset common franchise in the solid least at with equating and the losses in of Improvement with changes.Allowance third for turning loan portfolio am I September Hiltop's XXXX. that quarter the credit recoveries outlook, PrimeLending, of collective increased in net $XXX this remain the XXth, during $X.X expense losses the growth

as time, portfolio. as as As over well we've assumptions makeup the volatile the seen and in can economic credit is impacted by changes it of mix ACL be

allowance could time. be continue that net outlook growth by for credit to changes the the over the loan will portfolio, trends credit and and macroeconomic volatile be changes believe in to in We allowance driven losses migration future the the

outlook GDP that uncertainties and be do we the current volatility regarding ACL rates, the the inflation, could heightened in Given for growth unemployment, over future quarters. interest the expect coming

Turning to X. Page

the the portfolio estate. more September As owner-occupied and C&I totaled we into owner a XXth, show approximately estate provided allowance we distribution key quarter, in the portfolio At real of view Internally, CRE and little real I previous our $X.X detail loan in more which the investor lending. like segregate CRE wanted billion, across some or to the nonowner-occupied segments.

As makes real CRE for the the driven repayment the up the of owns real that part, estate. book. business most XX% estate Nonowner-occupied by operating is

loan in to is retail type. noted right-hand chart nonowner-occupied and by coverage bottom segment a the breakout is the in In portfolio As of property diversified the office multiple within ACL across income-producing differentiation we the provide highlight types. table, upper

office that footprint the valuation markets is and date across retail to view exposure highest and recession, Our absorption risk portfolio. the the to both represent our in

do further the larger see cash of that monitoring and That not nonowner-occupied ongoing higher see the we real loan said, by any over expect currently could products. rates a challenges facing lead time. and existing the closely new as can risk systemic and ratios ongoing portfolio interest you third We're credit migration coverage quarter. entire and that flow estate those other such, segments maintain As ACO projects, driven emerge inflation to

X%, or interest income on primarily quarter, the X. the Page Net $XXX deposits. of decreased prior purchase to to including million third Moving equated million, third interest quarter higher by net in $X.X accounting by accretion. million Versus $X.X year yields income driven

versus points. X net XXXX the basis marginally quarter second basis interest As we expected, margin of XXX point declined to from

our of as Fed reflects under competition outlook we throughout the coupled be remained year. liquidity by Hilltop $X.XX quarters below decline a of equated relatively window liquidity Reserve's other moves XXXX. In I'm available rate and liquidity, maintained of $X.XX ongoing consider $X highlight XXth. for between that current Page efforts, borrowing just NII billion Further, sources fourth of that of increases, into leverage and the as cause internal discount deposit X. of billion such, with it's the comparable our the XXXX, stable and XXXX Our to to over majority noted sources program as moving and remain liquidity the $X.X end to whereby NIM prior and and XXst, could modeling the December during scenario further sources. to collateralized of Federal to XXXX.Further source We approximately September the quarter we a to the stable plan funds chart,

on $X.X chart, excess Federal the September XXth, is billion the reserves shown Reserve. of at Hilltop maintained at As

deposits beta the federal noting chart, our of continue between bottom we and beta through-the-cycle beta in to at Additionally, for current additional fall the on detail changes any deposit left that rate reserve interest-bearing date, we Further, the XXX%. provide to are that marginal actions XX% the expect XX%. pace will

expecting we're deposit As -XX% be our result, through-the-cycle XX% will now betas interest-bearing within the range. a that

Turning XX. Page to

a an total decline basis, versus driven prior suite decreased Hilltop of XXXX. by million by quarter approximately $XX.X billion the are billion stable $XX.X deposits deposits, deposits largely Third average ending quarter, PlainsCapital remained Bank. broker-dealer second in the On balance largely to from $XX quarter

basis an pricing our As the from increase of basis costs of XX quarter. to points deposit prior interest-bearing a rose result efforts, ongoing XXX points,

stated our updates approach. will we've As and the in made the from our expectation balance the Reserve to the path Federal increases continue deposit XXXX, on given pricing rate views of our for potential of interest-bearing costs to move higher

to continue balances to costs, we deposit over of position with we focus income long-term focused prudent competitive remain relates management our on interest relationships, it customer time. balancing As and net on our while

However, environment remains the current challenging.

the we the noted As higher deposits earlier, expect pressure coming will that competition for quarters. over continue intensity rates to of

of XX. equated income million. Page the to XXXX for Total moving Now third noninterest to quarter $XXX

across million U.S. mortgage of versus year or Further, lower. XX%, Third combination banking, and originators whereby $XXX XXXX, mortgage million versus the rates, purchase quarter mortgage-related terms by the price quarter, in materially overcapacity the driven and $X has fees million volumes and decreased income higher volumes limited third $XX ongoing driven housing margins third refinance the by by decreased prior by inflation, ongoing quarter in of mortgage challenges XX%. home decreased the volumes of interest or supply and

the low over at levels. within quarter on remained seen last remaining the we've believe months, margins range are we During third XXXX, unsustainably tight of the what gain XX sale

the and that industry increased by We to TBA substantially as to line Lock continue housing, under quarter, substantially lock will in XXXX programs. recovery volumes third from capacity their certain not second and down likely slowly a occur states a be to assisted other expect additional quarter were will remain.During support margins state constraints straight authorities $X payment full impacted billion. providing just levels volumes and funding

strong. While volumes are very

spreads the decline period. rate prior market versus Secondary to volatility causing year did in environment, current the net the revenues in the contract reflecting substantially,

revenues, fixed versus income the finance Somewhat period. decline other markets structured income an prior fee in in which capital stable yielded offsetting was year a relatively revenues increase the

we've at liquidity overall in as recognize production to past, As the noted by from can market fixed that period-to-period businesses interest both be are income the volatile impacted services structured they fans trends. and important HilltopSecurities rates, it's and

expenses been versus same Turning prior by to million. year compensation operations reduced year the contribution. mix lower PrimeLending to the expenses year by mortgage period, third decreases work $XX and resize from period decreased and Page environment. $XXX current PrimeLending and our of revenue to in HilltopSecurities, of $XX over prior in Noninterest in which prior variable fee versus XX. by was approximately to support revenue linked supported the Further, was million generation $XX the Decrease ongoing to the reflecting have million expenses the quarter fixed million

we expect franchise, per variable productivity, related remain around streamlining to helping quarter continue expenses pressures compensation the operations Page ongoing Looking relatively forward, support as throughput market.Moving to will stable that the to our and ongoing to than inflationary $XXX our lower other headcount persist improving the across and efforts focused XX. in offset improved million

the Third quarter levels. the in $XXX of second declines to in and loans declines equated net X-X HFI declined the million, HFI On with driven average basis, versus by loans second family XXXX a billion, mortgage stable period-end XXXX $X portfolio. lending quarter quarter warehouse mortgage by

to remain XXXX commercial continues any loan Early, prior X%-X% mortgage lending we from during year X-X low levels excluding into XXXX, slow to are continue retention expecting average will bank growth loan of mortgages that growth and retained lending. activity as and family contract. lending expect full warehouse We

credits take to into coverage cash to XX. said, resilient a Turning did prudent Page remained period, closely have time. during deteriorated. few we customers' special have to those move with resulting we their manage those and that exposure our steps We're That quarter. quality ratios mention customers and Overall, the monitoring the as ensure through over flows performance working credit third has

have on cause cycle relatively the As stable support million benign. XXXX, and upper us that during third outsized highlights recoveries the remained we we've trends bottom additional quarter. the of that Further, NPA purveiling shown right the levels reasonably third at of chart, graph in in seen quarter the $X.X net any recognized point, this providing left Currently, the remains concern. not

shown bottom at in interest the utilization of loss X.XX%, We quarter monitoring portfolio.As loans segments is credit are potentially activity rates our on mortgage the negative lower allowance the in page, impact and closely clients graph a ended bank estate as slowdown at for could certain an the real our third have at and our the economic right and rates, including borrowers of commercial coverage lending. warehouse higher expected on the

Turning to XX. Page

That a reflects quarter are the of lot and Current moderate Further, supporting assessment on work the customer delivered in we said, move we the outlook franchise our that uncertainty to a Q&A interest revised window of call. of where XXXX regarding the concludes the has participate. continues health that fourth customers remain focused to reflect you we future company to long-term economy. new franchise, for pleased As our to prepared inflation we'll our the the to and there outlook of shorter times for the risk time communities serve, will and into outlook our rates, some turn metrics great the comments, as delivering markets team remaining and profile changes, call our business XXXX, these, attracting and where our maintaining calls. be the adjust for XXXX.We position stockholder back value. we with updates to our overall the market delivering the economy our our of current clients, in of like quarterly to market section and we service of our respond, we teammates on to our across provide Operator, the

Operator

we [Operator gentlemen, will Instructions] comes and the Our from begin Stephens Inc. session. Thomas now question and question Ladies Wendler first from answer

Tom Wendler

C&I us there? you I on what lower give balances? utilization? Or we just lower some those quarter. color touch wanted Was saw last contraction to the drove it Can

William Furr

By million the warehouse in the drove there, decline of. that, C&I just virtue saw majority of $XX we includes mortgage quarter over a business. lending our

Tom Wendler

a Typically, expecting moving same for close be to broker there the the in Should year see just over Then dealer. we XQ. strong we year? this

Jeremy Ford

the public the throughout fourth that has pretty typically think I year solid a builds business quarter. finance and

did think see quarter is have in albeit business, could would our and that we from finance I which that strong we of -- decline we structured third HilltopSecurities volatile, this think I public we're that, optimistic quarter. about in a pretty finance,

Tom Wendler

your book tangible buyback? near what's trading now value, for stock appetite a the With

Jeremy Ford

We we've it, this appropriate. context year. been of think shown we constantly and when the evaluate cautious will act we've Also environment, in it's that we the

Operator

Our from KBW. question from next comes Lay Wood

Wood Lay

start to mention you on special to what Any the that on could increase drove wanted increase color quarter-over-quarter? I loans. give

William Furr

We to some as is had deterioration. flows a mention, or the challenging cash the some in them particular few They've closely is special with again, experiencing with a estate portfolio portfolio. out C&I C&I monitoring no seen regularly a environment credits them again, working there move noted that, Nothing, concentrations real through one up here. business we're following work client over in our much try just of across cash more our principally and help book, we're to client, across flow monitoring it Again, other the challenges. that large

Wood Lay

ACL If the color Or related driven related economic Any the that the and on by conditions. forecast? on that you to release qualitative is to there? breakdown X.X Moody's Slide I look Is give X the can factors?

William Furr

Moody's the qualitative maintained improvements future. both just and Not timing in scenario. prior the the depth were We quarter the overall SX consistently We recession the scenario, using assessment. in potential economic a quarter of forecast, and That's outlook, period-on-period. and modest current just SX both

Wood Lay

strong. be any that unlikely. deploying thoughts priority It increase CETX environment continues Is sounds Or Capital are current from there? to in through for top here. a this like capital levels super buybacks M&A? might

Jeremy Ford

highest capital believe cycle, that. and evaluating return. We M&A the the deploying be will that actively through We're

also we'll go higher. be capital and seen the capital I in front On quarter. in our muted term, see continue as we loan and saw generating balance contraction would our some growth, Then earnings. near to we've in the the sheet capital

Operator

Graham question Dick Our comes . Sandler next from from Piper

Graham Dick

topics Obviously, step of noninterest-bearing. specifically and balance some across took on what NIM industry. sheet is touch to quarter, which it seen wanted the the here, this down just I another we've

wondering so you quarter? on when out you What expecting are if have Just this going far color think you any guys and on balances might maybe noninterest-bearing? trends forward level

William Furr

bearing a say, seen, reasonably that mix said trend noninterest consistent from You a we've down in I'd perspective.

We related from to got to at interest-bearing. rates base grow. move our appetite next offerings continues the and higher, to noninterest-bearing from really deposits noninterest-bearing we customers. in the into likely their obviously, quarters would customers expect services said, of That into interest-bearing remixing that We've that treasury continues. expect move products good least perspective our as provide to to excess solid see deposits We couple of decline, a

deposits reasonably Our for view stable here noninterest-bearing time. remain into is continue next of quarters, steady but to over interest-bearing remix the and from couple from products we

Graham Dick

and smaller the the the NII bit little On are little maybe full this on takes for guys saw NIM, maybe a NII you X.X% bit, your to that down balance a XQ quarter, X% guidance sheet in better? similar the implying we a X%, a obviously, to if year, NIM holds as step and

William Furr

step higher, those higher. perspective, we'd to a lower. rate, that deposit our do an trend expect significant has sheet in about more an a higher continue we'd yields noted, lower, expecting From or also expect the expecting significant lower, to are moving funds talk perspective, the modestly pace modestly From move versus continue NII modestly perspective, yields We'll where a NII but move continue it NIM trend you an cost and deposit to step deposit as contracted not balance it to to much we first. are Without From to higher. Fed lower. perspective, continue NII are, to we're yield overall lower change expect yields shift but loan function we will to from moving

said time we've XXX. NIM think likely moves that over I toward

deterioration with said the the which further rate on NIM. number through would rate movements depending movement, each Federal we've we Reserve, think of in I expect

I between expectations we think be rate we're in given expecting comments. XXX to X% and our outlined current NIM our that prepared

Graham Dick

or into the Obviously, wanted to quarter. a just Wondering guys the seeing relates this little was provision The it XXXX you bit more that going thing to I guidance the guys on bit tightened last It provision charge-offs. are optimistic economy hit the is on guidance just on you and what are as from you forward. little the a based guys a line little the scenario here. more sounded, optimistic

William Furr

as cause We're payments in try looking therefore, to at us the negative in and migration would a haven't materially. haven't scenarios interest we we're million and comments, the at significant looking near The saw volatile Again, and and to in which for allowance we flows. noted, change tried looking my a on economic quarter, last rates obviously our it portfolio say I anything comments the closely. be We're that pretty retail drives portfolio date, the Yes, which just can any as office prepared from provision as the I relative $XX highlight expect in of the substantially. out to changes pretty quarter, relates our to the under be X. perspective, closely. can step you material the move overall to will it Again, quarter-to-quarter we we systemic the that provision, think this there quarter-to-quarter. across outlook can economic based deterioration portfolio From swaths the impact as up seen that as credit ACL, of cash we charge-off large any in volatile seen announcement provision noted management comments, to all took we put interest

Operator

lines. further Ladies no call. your are There you your gentlemen, to for We ask thank and concludes please conference disconnect today's you this and questions. participation

Hilltop (HTH) 20 Oct 232023 Q3 Earnings call transcript