Hilltop Holdings(US:HTH)2020-10-23 16:37Financial Data and Key Metrics Changes - Hilltop Holdings reported a net income of $153 million for Q3 2020, translating to earnings per share of $1.70, an increase from $74 million or $0.84 per diluted share in Q3 2019 [9] - Net revenue for the quarter was $604 million, higher year-over-year and linked quarter, driven by strong mortgage purchase and refinance markets [11] - Total deposits increased by $2.5 billion or 29% compared to Q3 2019, although there was a slight decline on a linked quarter basis [12] Business Line Data and Key Metrics Changes - PrimeLending originated $6.5 billion in loans during the period, an increase of $1.7 billion from Q3 2019, with a gain on sale margin that expanded by 105 basis points year-over-year [11] - PlainsCapital Bank delivered pre-tax income of $50 million with a net interest margin of 3.03%, reflecting a decline of eight basis points linked quarter [18] - Hilltop Securities reported pre-tax income of $35 million, an increase of 31% from Q3 2019, driven by strong performance in structured finance and fixed income services [19] Market Data and Key Metrics Changes - The mortgage market remained robust, with PrimeLending locking approximately $8.5 billion of new mortgages in Q3, marking a record interest rate lock quarter [38] - The structured finance business saw a revenue increase of $28 million, with volumes up 71% compared to Q3 2019 [58] Company Strategy and Development Direction - The company aims to optimize its capital position, with approximately $1 billion in excess capital as of quarter-end, and has initiated a modified Dutch auction tender offer for up to $350 million [14] - Hilltop is focused on prudent growth across its business lines while maintaining a moderate risk profile and delivering long-term shareholder value [61] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the ongoing impact of the COVID-19 pandemic, noting potential adverse effects on mortgage volume and credit deterioration [10] - The company is committed to supporting clients through the pandemic while executing growth and efficiency initiatives [61] Other Important Information - The allowance for credit losses totaled $155 million or 2.08% of the bank's loan portfolio, reflecting a stable position despite economic uncertainties [17] - Non-interest expenses increased by $78 million to $399 million, driven by higher variable compensation linked to strong fee revenue growth [42] Q&A Session Summary Question: Update on the modified Dutch auction and capital deployment - Management confirmed the tender offer is open and will expire on October 30, with plans to manage capital post-tender [66][67] Question: Insights on gain on sale margin and mortgage business - Management indicated that gain on sale margins benefited from market dynamics and pricing actions, expecting margins to remain within a specified range [70] Question: Future provisioning pace and credit migration - Management noted that future provisioning will be assessed quarterly, with expectations that charge-offs may not materialize until late 2021 [85][87]