Hilltop Holdings(HTH) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hilltop reported consolidated income attributable to common stockholders of approximately $28 million, equating to$0.42 per diluted share, with a return on average assets of 0.7% and return on average equity of 5.2% [124] - The allowance for credit losses decreased by $7.2 million, which includes$4.3 million of net charge-offs and a net $2.9 million release of the allowance, largely driven by improved economic scenarios [94] - Net interest income for the first quarter was$104 million, a decrease of $18 million or 15$50 million of pre-tax income on $13.1 billion of assets, representing a return on average assets of 1.2$16.5 million for the period, negatively impacted by low housing inventory, escalating home prices, and higher mortgage rates [10] - Hilltop Securities generated pre-tax income of $19 million on net revenues of$170 million, marking a 12% increase in revenue over the same period last year, driven by the mortgage trading business [27] Market Data and Key Metrics Changes - Average total deposits were approximately $10.7 billion, declining by approximately$363 million or 3% versus the fourth quarter of 2023 [57] - The average interest-bearing deposit cost increased to 358 basis points as of March 31, up from 340 basis points at the end of the previous quarter [59] - The commercial lending market is experiencing a pullback due to a higher interest rate environment and increased equity requirements, which is expected to pressure loan growth in the near future [24] Company Strategy and Development Direction - The company aims to maintain a moderate risk profile while delivering long-term shareholder value through strategic initiatives and cost management efforts [23] - Hilltop plans to continue retaining originated mortgages on the balance sheet, with future retention driven by the return profile of held mortgages and commercial loan demand [67] - The company is focused on enhancing sales distribution capabilities while upholding strong culture and risk management practices [29] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing economic headwinds but expressed optimism about the potential for recovery in the mortgage business, citing pent-up demand for housing [97] - The company expects continued pressure on net interest income and net interest margin due to competitive deposit rates and the current economic environment [110] - Management highlighted that while the next few quarters may remain challenging, there are signs of optimism within the mortgage business [27] Other Important Information - Hilltop maintains a common equity Tier 1 capital ratio of 19.7% and a tangible book value per share of $28.44, reflecting a$0.09 increase from year-end 2023 [14] - The company returned $21 million to shareholders during the period, including$11 million in dividends and 10 million in share repurchases [14] - The company is experiencing a shift in the timing of the predicted economic recession, now expected to begin in Q1 2025 instead of Q1 2024 [2] Q&A Session Summary Question: Reserve release this quarter - Management explained that the reserve release was due to a shift in the timing of the predicted recession, which allowed for a 4.1 million release in allowance for credit losses [36][37] Question: Margin expectations - Management indicated that net interest margin is expected to be pressured in the coming quarters due to rising deposit costs, but they anticipate stabilization and potential improvement in the fourth quarter [110][112] Question: Mortgage business outlook - Management noted that there is a significant amount of pent-up demand for housing, and if mortgage rates decline below 6.5%, they expect increased activity in the mortgage market [97] Question: Non-interest-bearing deposits - Management expects a steady but modest movement of deposits into interest-bearing products, with continued pressure on non-interest-bearing deposits [89][91] Question: Share repurchase strategy - Management stated they are mindful of share repurchase opportunities and will operate within their authorization of around $75 million, evaluating market conditions [79]