Hilltop Holdings(US:HTH)2023-04-21 18:01Financial Data and Key Metrics Changes - Hilltop reported net income of $26 million or $0.40 per diluted share for Q1 2023, with a return on average assets of 0.7% and return on average equity of 5.1% [4] - The common equity Tier 1 risk-based capital ratio stood at 18%, and tangible book value per share increased by $0.18 to $27.36 from Q4 2022 [8] - Total deposits declined by 3% for the quarter, while core bank customer deposits only declined by approximately 1% [5][9] Business Line Data and Key Metrics Changes - PrimeLending originated $1.7 billion in volume, with a gain on sale margin of 193 basis points, reflecting a 54% decline in origination volume from the prior year [7] - PlainsCapital Bank generated $58 million of pretax income on $13.7 billion of assets, with average loans increasing by $133 million or 8% annualized [26] - Non-interest expenses decreased by $36 million to $250 million, primarily due to a decrease in variable compensation at PrimeLending [40] Market Data and Key Metrics Changes - Mortgage-related income and fees decreased by $74 million versus Q1 2022, driven by high interest rates and limited housing supply [59] - The gain-on-sale margin for loans sold to third parties declined by 18 basis points to 193 basis points [39] - Average total deposits were approximately $11 billion, declining by $350 million or 3% compared to Q4 2022 [37] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and capital levels while adapting to market conditions [10][31] - Hilltop plans to reduce one to four family mortgage retention levels significantly for the remainder of 2023 due to current market conditions [20] - The company remains interested in M&A opportunities, particularly in Texas, and is looking for strategic fits in potential targets [71][93] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's liquidity position and ability to support customers despite industry volatility [4][6] - The outlook for the mortgage business remains challenging due to high interest rates and low housing inventory [28] - Management anticipates continued pressure on gain-on-sale margins and overall profitability in the mortgage sector [18][28] Other Important Information - The allowance for credit losses increased to $97.4 million, yielding an ACL to total loans HFI ratio of 1.19% [12] - The company repurchased $4.5 million of shares and declared a dividend of $0.16 during the quarter, an increase from the same period last year [9] - The company expects deposit competition to remain intense, impacting net interest income and margins [35] Q&A Session Summary Question: What actions are being taken to improve the mortgage business profitability? - Management acknowledged the challenges in the mortgage business and highlighted efforts to reduce fixed costs and right-size the business for a smaller market [68] Question: What is the expected effective tax rate for the remainder of the year? - The effective tax rate for the first quarter was low due to discrete items, with expectations of 24% to 26% for the remaining quarters [70] Question: Is M&A still a possibility in the current environment? - Management confirmed interest in M&A opportunities, particularly those that are strategic fits, and emphasized a strong balance sheet to support potential transactions [71][79]