Hilltop Holdings(HTH) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported net income of $29 million or $0.44 per diluted share for Q4 2023, with a return on average assets of 75 basis points and return on average equity of 5.5% [8] - For the full year 2023, consolidated income attributable to common stockholders was $110 million, equating to $1.69 per diluted share, with net income declining 3% year-over-year [16] - The tangible book value per share increased from year-end 2022 by $1.17 to $28.35, with a common equity Tier 1 capital ratio of 19.3% [13] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated $48 million of pretax income on $13.3 billion of assets, with average loans declining slightly due to seasonality [8] - PrimeLending faced challenges with low inventory and high interest rates, resulting in a pretax loss for Q4 2023, although it maintained an industry-leading customer satisfaction rating [10][32] - HilltopSecurities realized pretax income of $20 million on net revenues of $120 million, marking a 12% increase over the prior year, driven mainly by mortgage trading [33] Market Data and Key Metrics Changes - Average deposit balances declined by 7% due to bank failures and intense competition for deposits, while average total deposits remained stable at approximately $11.1 billion [6][51] - The commercial real estate (CRE) lending pipeline remains challenged, with clients delaying projects due to elevated rates and higher equity requirements [8] - Nonperforming loans increased to 0.8%, primarily due to a $33 million Texas hotel loan being placed on nonaccrual [9] Company Strategy and Development Direction - The company aims to focus on prudent risk management and maintaining strong capital and liquidity to navigate economic fluctuations and pursue growth opportunities [30] - Hilltop is strategically positioning its mortgage business towards profitability, recognizing the prolonged mortgage cycle, and enhancing its sales distribution capabilities in Hilltop Securities [30][35] - The company plans to invest approximately 50% of cash flows from its securities portfolio into better repayment exposure securities [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging mortgage market in 2023 but highlighted the company's diversified business model and proactive measures to manage costs [5][28] - The outlook for 2024 reflects expectations of continued pressure on net interest income due to elevated deposit rates and competition [20][23] - Management expressed optimism about the public finance business due to anticipated infrastructure spending needs [11] Other Important Information - The company maintained robust capital levels, with a tangible book value per share compounding at 10% annually over the past five years [13] - A succession plan was announced with Jeremy Ford taking on the role of CEO at PlainsCapital Bank, ensuring continuity in leadership [14][36] Q&A Session Summary Question: Target for asset sensitivity reduction - Management aims to reduce asset sensitivity to closer to 3% over the next year [56] Question: Decrease in gain on sale margins in Q4 - The shift towards customers paying higher origination fees rather than rolling through gain on sale has impacted margins, with expectations for a slow rebound in sales [57] Question: Impact of potential rate cuts on mortgage - Additional rate cuts could help drive purchase business, but significant cuts are needed to impact refinance activity due to current mortgage rates [58][48] Question: Details on hotel credit that moved to nonperforming - The hotel credit was downgraded due to insufficient cash flows, and new appraisals have been requested to evaluate potential loss content [60] Question: Net interest margin trends - Net interest margin is expected to trend lower initially but may begin to improve in the latter half of 2024 depending on Fed actions [61] Question: Share buyback program - A new $75 million share repurchase authorization has been established, with evaluations to be made quarterly based on stock performance [66]