Hilltop Holdings(HTH) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported consolidated income attributable to common stockholders of approximately $113 million or$1.60 per diluted share for the full year 2022, with a return on average assets of 0.6% and return on average equity of 5% [25][29] - Net interest income for the fourth quarter was $123 million, reflecting an increase of$19 million or 18% compared to the prior year, driven by higher yields on loans and securities [59] - The allowance for credit losses increased to $95 million, yielding an ACL to total loans HFI ratio of 1.18$58 million in pretax income with a return on average assets of 1.3%, although pretax income was down year-over-year due to changes in provision expense [75] - HilltopSecurities generated pre-tax income of $19.8 million on net revenues of$107 million, an increase of 13% compared to Q4 2021, primarily driven by fixed income services [76] - PrimeLending experienced a loss before taxes of approximately $26 million on$2 billion of originated volume, driven by a 59% decline in volume and a 151 basis point reduction in gain on sale margin [55] Market Data and Key Metrics Changes - Average total deposits decreased by approximately $1 billion or 8$270 million or 2% quarter-over-quarter [33][54] - Purchase mortgage volumes decreased by $1.7 billion or 47$1.3 billion or 90% compared to the prior year [31] - The competitive environment for liquidity is expected to drive deposit rates higher throughout 2023, impacting net interest income [13][26] Company Strategy and Development Direction - The company is focused on enhancing productivity and expense efficiency across all business lines, particularly in mortgage operations, to align with current market conditions [7] - Hilltop aims to maintain a solid financial foundation with a strong balance sheet and ample liquidity, allowing for investment in business and resilience through economic cycles [77] - The company plans to continue evaluating its business on a weekly and quarterly basis to adapt to production trends and market conditions [85] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, citing a solid foundation and strong leadership across Texas, despite acknowledging challenges in the mortgage market [5][57] - The management anticipates continued pressure on the mortgage segment due to rising interest rates and inflation, but expects to reach breakeven or profitability in the second half of the year [86] - The company is closely monitoring credit quality, with no significant signs of deterioration currently, but remains cautious due to economic uncertainties [5][9] Other Important Information - Hilltop returned $485 million to shareholders through dividends and share repurchase efforts, repurchasing approximately 19$0.16 per common share, a 7% increase from the prior quarter, and authorized a new stock repurchase program of $75 million [56] Q&A Session Summary Question: Steps taken to reduce the cost base in the Mortgage segment - Management indicated ongoing vigilance around cost management and rightsizing the business to drive profitability, with significant reductions in non-originator headcount [14][16] Question: Trajectory for margin trends - Management expects modest improvements in net interest income and net interest margin through the first half of 2023, with potential moderation in the second half due to competitive pressures [38][68] Question: Credit metrics and loan segments under review - Management is closely monitoring the entire loan portfolio, particularly floating rate loans and segments like office and hotel portfolios, due to the impact of rising interest rates [93][94] Question: Deposit guidance and balance sheet size - Management anticipates average deposits to decline by 4% to 8% for the year, with expectations that the overall size of the balance sheet will remain similar year-on-year [95]