Hilltop Holdings(HTH) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported net income of approximately $20 million, or$0.31 per diluted share, with a return on average assets of 0.6% and return on average equity of 3.8% [32] - The consolidated net interest income decreased by 12% year-over-year, totaling $104 million, primarily due to higher yields on deposits and declining earning assets [38][42] - The allowance for credit losses increased by$11 million to $115 million, driven by specific reserves on two auto lending relationships [39][106] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated$33 million of pretax income on $12.7 billion of assets, with average loans rising by$44 million, mainly from mortgage warehouse lending [33] - PrimeLending saw positive pretax results with higher origination volumes during the normal buying season, achieving a gain on sale to third parties' rate of 233 basis points, which was 12 basis points higher than in Q1 [35] - Hilltop Securities generated pretax income of $7 million on net revenues of$104 million, with public finance services experiencing a 3% increase in net revenues [36] Market Data and Key Metrics Changes - Average total deposits for the second quarter were approximately $10.4 billion, a decline of about$845 million, or 7%, compared to the same quarter in 2023 [18] - Non-interest income for the second quarter equated to $193 million, with mortgage revenues remaining stable despite modestly lower origination volumes [46] - The bank's net interest margin increased by 10 basis points from the first quarter to 3.1$11 million compared to the second quarter of 2023 [9] - The company anticipates challenges in profitability for PrimeLending as origination volumes follow normal seasonal trends through the end of the year [9] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the ongoing uncertainties in the market regarding interest rates, inflation, and overall economic health [25] - The company expects loan growth to be challenged in the second half of the year as commercial clients remain cautious and new transactions require higher equity investments [64] - Management noted that the Texas economy remains strong relative to the national economy, but structural issues and cautiousness will continue to pressure overall loan growth [69] Other Important Information - The common equity Tier 1 capital ratio stands at 19.5%, and tangible book value per share increased from year-end 2023 by $0.28 to$28.63 [11] - The company returned $21 million to shareholders through dividends and share repurchases during the period [11] Q&A Session Summary Question: Can you talk about the shift in loan growth guidance? - Management indicated that while pipelines are up on a linked quarter basis, they are down year-on-year, and the current structures require higher equity investments before loan facilities are accessed [52][64] Question: What drove the decrease in non-owner occupied office portfolio ACL? - A significant credit that had not stabilized reached stabilization and exceeded overall covenant levels, allowing for an upgrade [82] Question: Can you provide color on the guidance for deposits? - Management noted that while non-interest-bearing deposits are expected to decline, core deposits have shown growth, and they anticipate continued growth in non-brokered, non-broker/dealer areas [86] Question: What is the outlook for gain on sale margins as rates potentially decrease? - Historically, as rates decrease, gain on sale margins would increase, but the current market dynamics may lead to a muted impact on refinance activity [91]