Hilltop Holdings(HTH) - 2024 Q3 - Quarterly Results

Financial Performance Overview Third Quarter 2024 Financial Results Hilltop Holdings reported net income available to common stockholders of $29.7 million, or $0.46 per diluted share, for the third quarter of 2024, a decrease from $37.0 million, or $0.57 per diluted share, in Q3 2023, primarily due to lower net interest income and reduced revenues in wealth management and mortgage origination segments Q3 2024 vs. Q3 2023 Financial Results | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Income to Common Stockholders | $29.7 million | $37.0 million | -19.7% | | Diluted EPS | $0.46 | $0.57 | -19.3% | - The Board of Directors declared a quarterly cash dividend of $0.17 per common share, payable on November 22, 2024[3] - Financial performance continues to be influenced by uncertain economic conditions, including changes in U.S. Treasury yields, mortgage rates, funding costs, and inflation[3] CEO's Remarks and Strategic Focus President and CEO Jeremy B. Ford highlighted the company's operational strength, noting that PlainsCapital Bank and HilltopSecurities both achieved sequential profitability growth, while PrimeLending's performance was negatively affected by lower origination volumes and a mark-to-market adjustment on mortgage servicing rights, with a strategic focus on navigating the anticipated rate-cutting cycle by managing funding costs and asset yields - The company is focused on the following strategic priorities as it enters an anticipated rate-cutting cycle: - Strategically lowering funding costs - Managing asset yields - Optimizing total earning assets[4] - PlainsCapital Bank and HilltopSecurities both increased profitability on a sequential basis[4] - PrimeLending's results were negatively impacted by lower origination volume and a negative fair value adjustment on mortgage servicing rights (MSR) assets[4] Third Quarter 2024 Key Highlights In Q3 2024, Hilltop experienced a reversal of credit losses of $1.3 million, a significant shift from the $10.9 million provision in Q2 2024, while mortgage-related income declined 9.9% year-over-year, and key profitability metrics such as ROA (0.84%) and ROE (5.51%) decreased compared to Q3 2023, despite an increase in book value per share to $33.51 and maintained strong capital ratios, with a CET1 ratio of 20.48% - A reversal of credit losses of $1.3 million was recorded, compared to a provision of $10.9 million in Q2 2024 and a reversal of $40 thousand in Q3 2023, driven by net charge-offs and changes in the macroeconomic outlook[4] - Net gains from sale of loans and other mortgage production income decreased by 9.9% year-over-year to $79.9 million[4] Key Performance and Balance Sheet Metrics (Q3 2024) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Annualized ROA | 0.84% | 0.94% | | Annualized ROE | 5.51% | 7.11% | | Book Value per Common Share | $33.51 | $31.91 | | Total Assets | $15.9 billion | $16.4 billion | | Total Deposits | $10.8 billion | $11.1 billion | | Net Interest Margin | 2.84% | 3.02% | - Maintained strong capital levels with a Tier 1 Leverage Ratio of 12.95% and a Common Equity Tier 1 Capital Ratio of 20.48% at September 30, 2024[6] Consolidated Financial Statements Consolidated Balance Sheets As of September 30, 2024, Hilltop's total assets stood at $15.9 billion, a slight increase from $15.6 billion at June 30, 2024, but a decrease from $16.4 billion a year prior, with total deposits increasing to $10.8 billion from $10.4 billion in the prior quarter, and loans held for sale seeing a significant quarterly decrease of 26.2% to $0.9 billion Selected Balance Sheet Items (in thousands) | Account | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $15,926,405 | $15,620,490 | $16,396,858 | | Loans held for investment, net | $7,868,712 | $8,058,438 | $8,093,230 | | Loans held for sale | $933,724 | $1,264,437 | $1,058,806 | | Total Deposits | $10,791,447 | $10,373,856 | $11,103,097 | | Total Liabilities | $13,720,546 | $13,457,879 | $14,289,996 | | Total Stockholders' Equity | $2,205,859 | $2,162,611 | $2,106,862 | Consolidated Income Statements For the third quarter of 2024, net interest income was $105.0 million, down from $115.7 million in the same period last year, with the company recording a reversal of credit losses of $1.3 million, while noninterest income increased slightly to $200.4 million, and noninterest expense also rose to $264.3 million, resulting in a net income of $32.9 million Selected Income Statement Items (in thousands) | Account | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Interest Income | $105,043 | $115,650 | | Provision for (reversal of) credit losses | $(1,270) | $(40) | | Total Noninterest Income | $200,443 | $196,849 | | Total Noninterest Expense | $264,312 | $260,017 | | Income Before Income Taxes | $42,444 | $52,522 | | Net Income | $32,905 | $39,311 | | Income Attributable to Hilltop | $29,693 | $37,042 | Segment Performance Segment Results Summary In Q3 2024, the Banking segment remained the most profitable, generating $48.1 million in pre-tax income, while the Broker-Dealer segment contributed $17.0 million in pre-tax income, and the Mortgage Origination segment faced headwinds, reporting a pre-tax loss of $8.7 million, driven by lower revenues and continued expense pressures Segment Income (Loss) Before Taxes - Q3 2024 (in thousands) | Segment | Income (Loss) Before Taxes | | :--- | :--- | | Banking | $48,145 | | Broker-Dealer | $16,994 | | Mortgage Origination | $(8,718) | | All Other and Corporate | $(13,977) | | Consolidated Total | $42,444 | Segment Income (Loss) Before Taxes - YTD Sep 30, 2024 (in thousands) | Segment | Income (Loss) Before Taxes | | :--- | :--- | | Banking | $131,300 | | Broker-Dealer | $43,138 | | Mortgage Origination | $(23,818) | | All Other and Corporate | $(40,532) | | Consolidated Total | $110,088 | Key Financial Metrics and Ratios Selected Financial Data Hilltop's consolidated return on average equity (ROE) was 5.51% and return on average assets (ROA) was 0.84% for Q3 2024, both declining from the prior year, with the net interest margin compressing to 2.84%, and the Mortgage Origination segment's loan volume at $2.3 billion, slightly up from Q3 2023, but net gains from loan sales decreased to 224 basis points Consolidated Performance Ratios | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Return on average stockholders' equity | 5.51% | 3.84% | 7.11% | | Return on average assets | 0.84% | 0.59% | 0.94% | | Net interest margin | 2.84% | 2.90% | 3.02% | | Book value per common share | $33.51 | $32.86 | $31.91 | Mortgage Origination Segment Data (volume in thousands) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total mortgage loan originations | $2,307,463 | $2,243,701 | | Net gains from mortgage loan sales (bps) | 224 | 198 | Capital Ratios Hilltop maintained robust capital levels as of September 30, 2024, with the consolidated Common Equity Tier 1 (CET1) capital ratio increasing to 20.48% from 19.45% in the prior quarter and 18.60% a year ago, and the Tier 1 leverage ratio also improving to 12.95% Capital Ratios Comparison | Ratio | Entity | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Tier 1 Leverage | Hilltop | 12.95% | 12.87% | 11.92% | | Common Equity Tier 1 | Hilltop | 20.48% | 19.45% | 18.60% | | Total Capital | Hilltop | 23.68% | 22.57% | 21.54% | Asset Quality and Non-Performing Assets Asset quality improved during the third quarter of 2024, with non-accrual loans decreasing to $91.2 million, or 1.02% of total loans, from $105.7 million (1.12%) at the end of Q2 2024, and total non-performing assets as a percentage of total assets also declining to 0.59% from 0.70% in the prior quarter Non-Performing Assets (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Non-accrual loans | $91,186 | $105,664 | $31,498 | | Non-accrual loans as a % of total loans | 1.02% | 1.12% | 0.34% | | Total non-performing assets | $94,343 | $109,101 | $36,884 | | Non-performing assets as a % of total assets | 0.59% | 0.70% | 0.22% | Net Interest Margin Analysis The taxable equivalent net interest margin (NIM) for Q3 2024 was 2.85%, a decrease from 3.04% in Q3 2023, driven by a significant increase in the cost of interest-bearing liabilities, which rose to 4.07% from 3.74% year-over-year, outpacing the increase in the yield on interest-earning assets (5.72% vs. 5.68%), resulting in a net interest spread of 1.65%, down from 1.94% in the prior-year quarter Net Interest Margin (Taxable Equivalent) Breakdown | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Yield on Interest-Earning Assets | 5.72% | 5.68% | | Cost of Interest-Bearing Liabilities | 4.07% | 3.74% | | Net Interest Spread | 1.65% | 1.94% | | Net Interest Margin | 2.85% | 3.04% | Corporate Information Conference Call Information Hilltop will host a conference call and webcast on Friday, October 25, 2024, at 8:00 AM Central Time to discuss the third quarter 2024 financial results, led by President and CEO Jeremy B. Ford and CFO William B. Furr - A conference call to review Q3 2024 financial results is scheduled for Friday, October 25, 2024, at 8:00 AM Central (9:00 AM Eastern)[14] About Hilltop Holdings Hilltop Holdings is a financial holding company based in Dallas, Texas, with main operations including business and consumer banking through PlainsCapital Bank, nationwide residential mortgage lending via PrimeLending, and a range of securities brokerage, institutional, and investment banking services through its broker-dealer subsidiaries, Hilltop Securities Inc. and Momentum Independent Network Inc. - Hilltop's primary business lines are: - Banking: Business and consumer banking via PlainsCapital Bank - Mortgage Lending: Residential mortgage lending through PrimeLending - Broker-Dealer: Securities brokerage, investment banking, and advisory services through Hilltop Securities Inc. and Momentum Independent Network Inc.[15] Forward-Looking Statements This report includes forward-looking statements that are subject to various risks and uncertainties, with key factors that could cause actual results to differ materially including credit risks, cybersecurity threats, changes in economic conditions, interest rate fluctuations, and risks associated with real estate loan concentrations and uninsured deposits - The report identifies several risk factors that could impact future performance, including credit risks, cybersecurity, economic conditions, interest rate changes, and real estate concentration[16]