Hilltop Holdings(HTH) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported net income of $22 million or $0.28 per diluted share for Q1 2022, with a return on average assets of 53 basis points and return on average equity of 3.6% [6] - The common equity Tier 1 capital ratio was 21.3% at period end, and tangible book value per share increased by 6% year-over-year to $27.47, although it declined by $0.90 or 3% from the prior quarter due to unrealized losses in the investment portfolio [17][18] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated $47 million of pretax income on $14.9 billion of average assets, with average loans increasing by $130 million or 8% annualized [7] - PrimeLending originated $3.8 billion in volume, with a gain on sale margin of 321 basis points, reflecting a 39% decline in origination volume from the prior year [12] - Hilltop Securities faced a $26 million shortfall in income compared to the prior year, primarily due to low volumes in municipal and mortgage capital markets [14] Market Data and Key Metrics Changes - Total average deposits increased by $340 million or 3% quarter-over-quarter and by $1.4 billion or 12% year-over-year, with average deposit balances up 56% from year-end 2019 [10] - The mortgage market saw a significant decline in refinancing volumes, dropping from 53% to 27% of total volume [13] Company Strategy and Development Direction - The company aims to maintain strong underwriting standards amid elevated competition for commercial loans, focusing on core loan growth primarily in commercial real estate [9] - Hilltop plans to continue monitoring industry trends and adjust for excess capacity from lower business activity in the mortgage sector [13] - The company remains confident in its diversified business model and the strength of its employee base to endure industry cycles [20] Management's Comments on Operating Environment and Future Outlook - Management expects market volatility to persist with anticipated significant interest rate increases, which will have varying impacts on different business segments [19] - The outlook for the mortgage business remains challenging due to rising interest rates and competitive pressures, with expectations for continued pressure on gain on sale margins [38] Other Important Information - Hilltop paid dividends of $11.8 million to shareholders during the quarter [18] - The allowance for credit losses was $91 million, yielding an ACL to total bank loans HFI ratio of 1.17% [27] Q&A Session Summary Question: Capital returns and allocation - Management indicated they have about $1 billion of excess capital and authorized a $100 million share repurchase for the year, with plans to repurchase shares in the open market [56] Question: Impacts on TBA and municipal originations - Management noted that national issuance was down 16% in the first quarter, impacting underwriting business, but municipal advisory business remains strong [61] Question: NII guidance and drivers - Management expects NII growth of 3% to 6% for the year, driven by loan repricing and deployment of excess liquidity into securities and loans [67] Question: Expense outlook - Management acknowledged that non-variable expenses were down year-over-year, but expects a step-up in fixed expenses due to inflationary pressures [73] Question: Charge-off outlook - Management maintained a cautious outlook on charge-offs, indicating potential for outperforming guidance if the economy remains stable [90] Question: M&A strategy - Management expressed interest in pursuing bank M&A, seeking partners that enhance their franchise in their core market [113]