HTH - Earnings call 4 2023 | Hilltop Holdings Inc.

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Operator

Welcome to the Hilltop Holdings Fourth Quarter 2023 Earnings Call and Webcast. [Operator Instructions] This call is being recorded on Friday, January 26, 2024. I would now like to turn the conference over to Erik Yohe, Executive Vice President at Hilltop Holdings. Please go ahead.

Erik Yohe

Thank you, Mark and good morning.

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

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

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

Jeremy Ford

morning. good and Erik, you, Thank

our being priorities results, to outline on reflect our and XXXX earnings with mortgage performance book to a share, year year. to variety share profitability hampered per areas. In per we company take our grew through upcoming like by and combined also a Before positions. approve challenging business share, I'd market, outstanding model, value our the of liquidity employees Hilltop's strengthening XXXX, funding our historically the our a the Despite across quarter for and we dividends of diversified per allowed go fourth for the moment while

Additionally, capitalize we balance customer a earnings that and as further advantage banking the credit on across our was balance a the pulled in approach industry. demand, lending opportunities viable with standpoint, From deposits the X% decline taking testament given remainder of our the hiring This structure the deposit occurred first by around improving our identify of and tightening cost and future to to of financial that of a the persisted dislocation X% This in bank by relationship the deposit loan failures of competitors spurred year, average ability and funding growth we half potential was muted strained despite by intense services experienced back. Conversely, and opportunities trend long-term our enhanced average competition is funding decline. exacerbated initially -- a growth sheets balances have standards. our throughout generated year.

increased losses CRE in decline loan the expense without certain credit meaningful strategic we focus our options, on office. in costs, our proactively particularly reduction rely in our standpoint, expensive along funding fixed a interest withstand to for on deposits in net wholesale us allowance an allowed to standpoint, operations, resulted on reflect year-over-year. From industry to broader growth particularly and credit to improved approach income having conservative management in year, enterprise-wide expenses portfolios, with lens this managing an resulted migration Our significantly mortgage a noninterest challenges cost in year-over-year. From which

this a priority. area remains in Our ongoing monitoring

take profitability, advantage navigate and trajectory steering the the our and to liquidity Concurrently, longer towards the and management landscape our and risk business anticipated. organic to growth strong maintaining XXXX, enter As we in a of focus a and remains mortgage inorganic recognizing prudent committed order for bank cycle at we capital endured mortgage primary than fluctuating opportunities. on are economic has

strategically capitalize are a in on latter business our and year. positioning environment adapt of in to Securities opportunities to Hilltop growth rate anticipated half the we potentially Additionally, the lower

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

normal single-family $XX.X During as the National loans return the quarter, Average of X.X%. Lending from the in into generated in on that new average on off pipeline challenged, balances occurred to assets elevated and hold clients year rates and declined quarter requirements. a billion due remains of PlainsCapital representing on lending million pretax slightly CRE third assets, at Warehouse projects for Bank expect equity our to $XX seasonality as higher continue The income of bank and residential the declined. portfolio we

nonaccrual. one Texas negative increased single were net than placed a less hotel this asset some loans $XX.X X.X% as management the returned loans million period, a declined and the to credit. during million $XXX fourth of of expensive asset bank in billion due being continues Securities Our were more stable run the In of excess we migration deposits. notable to as average off quarter, did to our of balance and a million the the had $XX result deposits credit flat Nonperforming the quality, charge-offs of liquidity suite Hilltop of million average loan outside X% criticized to to primarily run balances broker broker -- Overall, $X be on and quality experience quarter, $XXX and deposits off. In ability deposit and from quarter. primarily back

head seasonality, collectively of These loan was originators affordability operations streamline low and home year-over-year by interest lower decrease a over count ongoing XXXX to expenses. significantly impacted decades to take continued and homebuyers rates. to refinance as activity. in Moving escalating fixed fourth non-sales stark and In its underperforming well these and response for variable unprofitable to PrimeLending locations. and reducing include The higher as continue inventory, measures resulted prices challenges, lowest notably closing proactive measures the PrimeLending. quarter in two in Which

result, PrimeLending's a environment, prior These rating be business quarter XXXX to resilience year to as speak team's maintained the of tough customer the achievements for fourth and period. Despite strength continue the one its As places satisfaction volumes work. recognized loss PrimeLending the industry-leading our and commitment. relative about exceptionally to top pretax

mortgage utilization for strong eventual already the in less prime lending year. head realized peers HilltopSecurities revenues of the increase income housing by million reduce growth we stability, recovery driven forward, mainly and the our marking business to believe combined markets. In within suite with the hiring prior cost the Wealth $XX Management. of of originators million, reduce quarter, fourth mortgage our to Looking pricing, count trading technology over from improved was dependency measures This success XX% the place with $XXX and loan base, of products a skilled pretax net position in on a and taken

need our have at decided on our Services banks to revenues municipal the HilltopSecurities. net cash fourth Public and remain recent in slightly. a spending hiring public exit fees Finance Speaking business. for anticipated opportunistic our decrease products a increased pool with to from public also revenues the Revenues increased about finance underwriting to that Municipal revenues strong increased to lines the due finance X% optimistic the spoke infrastructure declined, We quarter from business, compared experienced advisory particularly improved year. while business fee products. large last

net a finance rise structured businesses. due mortgage-related mainly revenues Our our experienced significant to

like modestly key space revenues While markets last successful positively taxable improved remains year's the Florida Federal contributed quarter. In our rate fourth to net revenues. the compared impacted housing volatile, this activity fourth and Wealth business The dominant sweep Reserve in in quarter. meaningfully in FDIC position hikes our Management,

our offerings independent quality brokerage in both on advisers and focus to the channels. and product continue enhancing We recruiting firm

for of enthusiastic rates some small business, our takes income Finally, and we're off. our loan the as new group and growth resilience, while about stabilize showed HilltopSecurities, overall prospects business effort, the fixed challenges, facing

our As our strong to risk we enhance while our is practices. distribution upholding XXXX, capabilities and culture into management sales move further goal

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

Over book XX% our years, our at has annually. dividend per share the share compounded annually, per XX% at compounded value while has tangible past X

discuss important of Jerry May changes incredible a some of the been pass marks transformative. to results, financial end the has an for we over bank fourth happening contributions our a dedication nothing his to and era. X. leadership will and discuss I'd retiring career Shafner, I Before a CEO of founding on retirement to I'd be stellar cornerstone like quarter. been disclosed Will our at that success President the like presentation company. and Bank thank him XXXX, his XX-year PlainsCapital to to in PlainsCapital's our the His Jerry of to have moment take in short over since the

invaluable great You a plan, role line Their Operating made partner PlainsCapital promoted Hilltop. crafted at strength organization. on of fourth CEO the existing to Brian step proven Bank, a Further, take of was experience assets depth our and am Bank, of the friend. In honored are Chief Pete a leadership current bank quarter, this carefully in for the responsibilities PlainsCapital this part PlainsCapital leadership possible with to to transition, ensuring at and Villarrea was our This to to is dear and are stability in team. my President due and Notably, of addition step to is Heflin our of I continuity Bank. succession promoted and bank. Officer

and the remain poised are now in we with discuss growth our about it We Thank employees, of team I turn this customers, detail. financial communities to And shareholders it place, results mission our you. a in our And a success. new to are brings. and Will long-term for committed more solid With excited and dedication chapter focus. continued will opportunities we and unwavering to over serving

William Furr

X. Jeremy. you, I'll Page start Thank on

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

the highlight quarter's diversified This our benefits of results model.

million posted structured solid of within is sweep the business which revenue, revenue $XX management generated HilltopSecurities Wells represented period. As in line. In contribution their finance

assuring as mitigated persist activities margins The during positive to noninterest these modest credit the in broader lending the and stable by very decline offsetting mortgage volumes business. low, somewhat quarter, quarter-over-quarter. industry overall expected than continue the and fourth a origination cost in both expense and remained prime and as pressures NIM lower inventory bank market remains Somewhat struggle

Turning to Page X.

Hilltop million, diluted of $XXX year XXXX, reported full to consolidated stockholders common attributable per the income equating $X.XX to of For share.

While declined improve EPS X%, year overall the versus average X% lower did full shares. net driven by diluted prior income year, by

reserves. an the improved in outlook the Page macroeconomic quarter, million. and impacts million, credit losses in $XXX for Hilltop's specific somewhat December to total of collective trends I ratio Turning The loans for in losses credit as Allowance an quarter increase to the HFI additional increased X. by offset during presentation. XXXX. will allowance of address portfolio X.XX% to later ACL fourth of $XXX.X of yield XX, $XXX,XXX changes this credit which

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

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

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

Turning to Page X.

segments. lending. some real this totaled estate. we $X.X segregate which previous or of across CRE quarters, occupied owner XX, in we slide our the December portfolio highlights owner-occupied in CRE provided Internally, view loan portfolio and nonowner more approximately distribution estate, the C&I and the billion, real the key like As investor allowance

property types. In breakout differentiation we chart portfolio office is the the to the in book. right-hand a provide the ACL business by repayment nonowner-occupied CRE within highlight And income-producing upper table, most is by estate in loan is segment XX% noted and owns makes Nonowner-occupied the driven estate. diversified the for type. real bottom across As up of the part, multiple that of as the retail real coverage operating

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

As you ACL larger see, can than loan other coverage ratios nonowner-occupied those real products. maintain segments estate

call. fourth property's meet flows to as to quarter, this one the downgrade NPAs You in sufficient first credit hotel while currently approximately the and in the balance not during increase should $XX requested demands loan downgrade increase XX% for million property. the of cash of not the our the outstanding downgraded large during bank totaling of ACL, quarter. update This decrease Further, constitutes result cash or the nonaccrual significant during we'll a we status the to the new quarter did are the note have appraisals

portfolio is expect not monitoring credit clearly levels we And historical to cash the the for interest very currently that rates us, to we're projects as ongoing challenges date, lead While existing and the and have higher inflation entire closely. a more while driven focus normalized losses facing credit broader seen this credit by could real to time. further estate migration flow over commercial new in industry, ongoing do

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

by margin basis the expected, points we X basis to declined net interest As XXXX. of quarter Falling XXX points. versus third

with stable the one Fed fourth quarter. funds dock and Our majority reduction the rate outlook in contemplated current XXXX where a only reflects remained of scenario for

net downward. decreases rate will Additional pressure interest income

XX. Turning to Page

discussion to upper sensitivity left for and latest related to we In NII. shocks detail have the instantaneous provide interest on We rates. topics NII more parallel related our analysis table, and

is X% asset-sensitive scenario. in the As remains approximately the down in noted Hilltop chart, XXX

the by XX% sensitivity X%. approximately asset Over we've reduced to our XX% years, few past from

the noninterest-bearing rate be currently mix the first XX% will we securities mitigate to securities of into exposure. driven half at rates, products, are by to cash year. To shifts deposit ability deposit the and believe manage exposure better betas, some and from we through the we our interest-bearing XX% most stability which that the NII expect continue will significant maintain the which down modeling Going repayment our of we forward, begun help investing drivers portfolio flows a have deposit approximately of falling

the loans These generally In loans addition, sheet. we X shorter fixed and rate mortgage on hybrid including will are beginning to years. X retain additional periods balance maintain

rates monthly retain month intense. competition While elevated, remain expect volatile With a down that per XXXX average, We do X% basis, be on $XX said, by expectation deposit X% throughout remain to on loan XXXX. given and retention our deposit that expect be we million could XXXX. that will NII to will in versus

XX. $X.X XX. Page of maintained approximately Hilltop sources we chart, the billion available to Turning liquidity as the that In December of highlight

over liquidity, it's Reserve's the as liquidity discount window of do noted While plan internal program XX, we and our Federal as be prior Further, to not to modeling consider a comparable billion the equated increased the XXXX, liquidity steadily our collateralized other sources. below borrowing quarters that such, source the of leverage under we And throughout sources of year. December just to efforts. $X

Hilltop As Reserve. is XX, at shown maintained in at Federal excess $X.X billion the the chart, of reserves December

marginally beta Additionally, in interest-bearing We drifting XX% XX%. that deposit through of will XX%, the provide current changes two likely beta through-the-cycle the interest-bearing higher the be on cycle bottom date, within the left the betas noting expect pace chart, quarters. detail coming for of currently our of to range deposit that deposits the we over to

$XX.X million versus deposits the the quarter remaining client approximately total by are by Page in prior basis, from growth deposits deposits largely broker billion, whereby XX. ending quarter, XXXX. decreased On third an bank of in PlainsCapital. was at and average decline balance deposits offset broker-dealer build $XX quarter Turning sweep to the Fourth stable

During the returned million cash levels quarter, the reduce in to deposits Federal an overall Reserve. bank million sweep of at the brokered $XXX and effort excess deposits of $XXX

that $XXX Reserve the excess million expect we Federal year, coming the million. decline to will between Over deposits $XXX at and

quarter. and higher from quarters costs then rose points, the our expectation stabilize in ongoing continue XXX to points result first and the two increase the Fed the a XX funds Federal interest-bearing an is our until Reserve deposit efforts, basis As of will move changes deposit target. interest-bearing of pricing of costs XXXX It prior basis to

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

states mortgage-related XXXX equated XXXX, Fourth competition the challenges by turning resulting yields of and the for Further, current prior expect pressure year higher mortgage versus quarters. I'm of driven interest levels challenging. certain Total volumes funding balances purchase rates, million. home their noninterest the and materially intensity very $XXX million mortgage XX. state refinance fees ongoing margins volumes million for versus fourth state payment impacted price continued that housing quarter assistance authorities substantially to driven the additional lower. of on to and remain coming $XXX mortgage to programs. in And Page Block quarter, inflation, or were $X.X fourth of by down in decreased quarter $X XX% of supply terms originators in limited and across and lower banking, billion. over from whereby and housing by the providing the year However, environment quarter as ongoing increased has prior we overcapacity volumes fourth the decreased volumes by noted earlier, overall income substantially deposits will support combination remains income the the to U.S.

we've by were in versus expenses the in prior are the that structured period-to-period modest XX. As be market and turning both prior it's to important from million income liquidity at Driving $X.X recognize volatile past, as by finance Page year PrimeLending. trends. I'm fixed from fixed $XXX can production impacted year the services to the to and reductions noted same expense reduction Noninterest period HilltopSecurities rates, interest million. the they businesses decreased the at overall

to expenses to growth somewhat support on were fees. and assessment mortgage FDIC work current by continue offset computing and the higher of reductions operations they These focus the As resizing environment. our software in

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

average to versus in basis, loans declined by mortgage Fourth $XXX a the loans $XX HFI million X-X XX. of equated lending the ending and Page the third On equated HFI million $X.X portfolio, billion. by to declines mortgage in period $XX Moving declines million. of warehouse XXXX driven quarter to family quarter which

year remain to family pace loan are lending as to in retention the with continue modest of mortgages years. retained commercial prime any remaining growth average transactions XXXX, and that full activity competitive loan levels excluding to expect new prior in expecting from remain X-X lending growth are We mortgage XXXX, X% Currently, and remain of highly warehouse bank slower than we lending. will expected during challenged X%

Turning to losses $XXX,XXX. XX. charge-offs steady for have remained Credit net fourth as quarter equated Page the to

in quarter, credit largely as my $X.X loan right the to that X NPA driven year highlights our fourth by NPAs, of stable the in the third increased upper full of quarter reviewed of XXXX, $XX I levels million comments. criticized of Despite approximately increase charge-offs bank loans Further, points during were basis on HFI earlier graph the loans. the by levels equated the a million percentage For relatively net or the ending that XXXX. hotel versus

closely monitoring expected of our higher have rates our rates, interest certain activity and loans as slowdown are estate on economic We an and impact borrowers in segments potentially our portfolio. a in clients negative in lower real could commercial utilization

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

Moving to XX. Page

the XXXX, year. regarding market the into the rates, there move That current provided the of coming overall uncertainty interest said, outlook to we inflation have our be health lot continues of and in for economy. metrics As we a

prepared profile And our customer focused future the communities noted reflects section the our our pleased business where we position to you like our the on on calls. quarterly as has with participate. economy comments, As teammates and our our supporting serve, work across maintaining will value. Current our our provide where are markets that our concludes a Q&A the franchise, the outlook clients, remain the company we we adjust delivering Further, outlook updates for team and that we'll Operator, assessment franchise respond, to long-term the turn new to call for service current of we've times our these. call. great market risk XXXX to to customers moderate attracting delivering stockholder and changes we we back delivered for our in past, to the and of

Operator

line [Operator Instructions] Stephens question Our the Thomas of Wendler Inc. at first comes from

Tom Wendler

targeting It to idea reduction. sensitivity an still some give close Can looks you're asset trying there? on How you are neutral us the to guys like goals you move?

William Furr

think -- next the Will. is over I this

we'd to year, to move next closer to the X%. Over like that

Tom Wendler

mortgage. sale you Can And margins surprised on a gain see to us then bit I'm decrease there? just give over moving to any in color the XQ.

William Furr

that I point the in What we've customers comments, my seen, noted buy propensity at a have this want is down again, to rate. as to

higher expect and origination loan So fees the fees origination versus for sales But between rolling do and slowly we're to total throughout mix on seeing towards But remains we it's annual revenue to is into sale gain that more customers those noted, shift as our slowly sale. -- through reasonably 'XX. time. other 'XX versus paying expect we the fees Overall, will occur over continues on I necessarily stable. two again, gain rebound

Tom Wendler

more mortgage an in cuts increased If could like on rate have in. XXXX. one can just I the Can levels idea of you of give sneak us impact,

kind a of of you give cuts additional us have cut factored might I how of one guys modeling. think you an into impact Can mortgage? your couple idea

William Furr

as lower rate customers to relates the our got X%. mortgages a is currently rates think it below I mortgage loan have mortgage positive. given percentage is be rates, yield overall necessarily large that we where a industry of would view customer believe that again, But

substantial a the largest availability lower view we of we say would markets housing now, the some that certainly substantial the believe business. participate. will business. to purchase it levels and cuts in business mortgage the necessarily that, right across is we our we of to That where constraint the that really of see take inventory us as I overall be said, rates would project to believe refinance Given help the return what a forward number drive

of as rates important homes constraint. and the while affordability and so matters, availability overall largest certainly, levels, inventory we view And those the again, would are

Operator

James. question next Mitchell of our Tim Raymond And comes at from line the

Timothy Mitchell

to start with happened are of hotel or the bank that what loss just you color potential Could give it on moved there? that So nonperforming out And looking property? the to content could more on this some what be to you then credit quarter. in move

William Furr

I'll loss Well, order in from try to those a address content perspective. reverse

I closely cash as cash additional becomes As since result, it in flows closely like is move come current flows really when And evaluated and as our as we've in evaluate more would that new that available, expected. hotel nonaccrual the my appraisals. mortgage the the for the I period. short two been this business expected to loan. noted robustly reflect feel say, -- story was requested COVID, comments, we've the -- and particular haven't property we through overall cash operator a that and portfolio, believe as currently those but information this to we should challenges, our prudent quickly flow or in would lost have year We'll pro simply the back content very have results current we as evaluating the quarter's we've appropriate The and formas results

Timothy Mitchell

that? do this you moving And then 'XX? step And kind a that When to just trough margin. in and net took Perfect. play inflect quarter. into down think how could rate might interest cuts of

William Furr

Yes.

interest reported from you trend lower net I'll margin current expect statistics. would the levels. modestly give to we So

we X.XX%. the ended quarter, for So

X.XX%. at were we however, December, For

in quarter. move here you we where So sense That as and that headwinds to of it some they And second future. again, trough moves could as that again, said, the third move quarter. immediate there's soon trough in would the expect would we right expect second on the and it to depending kind gives in fourth higher quickly Fed the start how the But quarter.

Timothy Mitchell

for just one then last And Awesome. one me.

back announced run bought stock because $XX of a how rate a kind guys of through program, good do about think buybacks? million and of levels thinking are XQ this new Or about You million you you're $X I you 'XX? think, quarter

Jeremy Ford

put that we that million think share have authorization in I just repurchase a $XX place. we

of do So to at the every we quarter we're I'd but our this target year, kind where that evaluating going as look trading. stock as is for be

Operator

And further the there on line. no currently, are questions

for call. Thank So conference. point, you we'll today's very at that This attending. concludes conclude much all the now

You disconnect lines. your now may

Hilltop (HTH) 26 Jan 242023 Q4 Earnings call transcript