Hilltop Holdings(HTH) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported net income of approximately $36 million or $0.57 per diluted share, with a return on average assets of 1% and return on average equity of 6.6% [4] - The net interest margin increased by 19 basis points, while the blended cost of deposits declined by 9 basis points [5][6] - Net interest income for the second quarter was $110.7 million, reflecting a year-over-year increase of 7% [14][17] - The allowance for credit losses declined by $8.2 million to $98 million, with net charge-offs of approximately $900,000 [15][16] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated $55 million of pretax income on average assets of $12.7 billion, resulting in a return on average assets of 1.35% [5] - PrimeLending reported a pretax gain of $3 million, including a nonrecurring legal settlement of $9.5 million [9] - Hilltop Securities generated pretax income of $6 million on net revenues of $110 million, with public finance services seeing a 36% year-over-year increase in net revenues [11] Market Data and Key Metrics Changes - Average total deposits at PlainsCapital declined during the quarter, reflecting normal seasonal flows related to tax payments and distributions [18] - Core deposits increased by approximately $275 million year-over-year [8] - Mortgage revenues declined by $12 million, driven by lower valuation marks on the pipeline and lower loan origination fees [20] Company Strategy and Development Direction - The company aims to return its mortgage business to profitability while managing deposit costs and expanding lending activity [24] - Hilltop continues to focus on prudent growth of revenue producers while gaining efficiency across middle and back office functions [21] - The company anticipates ongoing activity in M&A, looking for cash-type deals due to trading at a discount on a tangible book value basis [51] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the work being done to support customers and communities, despite uncertainties in the market regarding interest rates and inflation [24] - The outlook for 2025 reflects the current assessment of the economy and market conditions, with adjustments expected as the market changes [25] - The company expects to recapture a material portion of deposits in the second half of 2025 as seasonal inflows occur [7] Other Important Information - The company returned over $46 million to stockholders through dividends and share repurchases during the quarter [5] - The tangible book value per share increased by $0.54 to $30.56 [13] Q&A Session Summary Question: Regarding the broker dealer business and elevated efficiency ratio - Management indicated that the elevated efficiency ratio is largely a reflection of the revenue mix, with public finance services up and structured finance flat to down [27][28] Question: On fixed expense guidance and incremental expense outlook - Management noted ongoing inflation in personnel and software expenses as drivers for the increased expense outlook [30] Question: About the net interest margin and deposit beta - Management highlighted improvements in analytic capabilities and a more rational marketplace as factors contributing to a higher than expected deposit beta [31][32] Question: On loan growth and competition - Management discussed strong pipelines and the impact of competition on loan growth, indicating that it will take time to fund commitments [36][41] Question: On capital management and share repurchases - Management expressed satisfaction with share repurchases and indicated plans to continue this strategy, while also evaluating M&A opportunities [50][51] Question: About credit improvements and classified loans - Management attributed improvements in classified loans to pay downs and effective workout activities by the credit team [53] Question: On deposit costs and outflows - Management clarified that recent outflows were seasonal and expected to rebuild in the second half of the year [55]