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Hilltop Holdings Inc. Announces Financial Results for First Quarter 2019

April 25, 2019

DALLAS--(BUSINESS WIRE)-- Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the first quarter of 2019. Hilltop produced income to common stockholders of $38.8 million, or $0.41 per diluted share, for the first quarter of 2019, compared to $24.4 million, or $0.25 per diluted share, for the first quarter of 2018. Hilltop’s financial results for the first quarter of 2019 include the impact of costs associated with significant leadership changes and other efficiency initiative-related charges which, in the aggregate, totaled $8.7 million before income taxes.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.08 per common share payable on May 31, 2019, to all common stockholders of record as of the close of business on May 15, 2019.

Jeremy Ford, CEO of Hilltop, said, “We are very pleased with the solid start to 2019 as revenues grew by 7% and noninterest expenses, including the impact of the previously announced leadership changes, remained in line with the prior year. We remain focused on executing against our ‘platform for growth’ initiatives, which we believe will continue to improve productivity, scalability and the services delivered to our clients. Our business continues to strengthen as we maintain strong capital levels and solid liquidity and credit quality, which will support our growth priorities in 2019 and beyond.”

  • Banking revenues and income grew as net interest margin improved versus the prior year period;
  • The broker-dealer segment’s capital markets and structured finance businesses performed well as the decline in market interest rates, combined with our ongoing investments in these businesses, yielded improved trading results in the quarter;
  • While the mortgage industry remains challenging, our mortgage origination segment’s focus on profitable production and efficiency resulted in lower operating expenses and supported a profitable quarter even though origination volumes declined versus the first quarter of 2018; and
  • Insurance generated improved profits versus the first quarter of 2018 as expenses declined and the investment portfolio performance improved

First Quarter 2019 Highlights for Hilltop:

  • In January 2019, Hilltop adopted the new lease accounting standard which, among other things:
    • Added operating lease liabilities of $118.5 million and right-of-use assets of $108.8 million to the consolidated balance sheet at March 31, 2019; and
    • Negatively impacted regulatory capital ratios, performance ratios and other measures dependent upon asset or liability balances;
  • Hilltop’s annualized return on average assets and return on average equity for the first quarter of 2019 were 1.21% and 8.04%, respectively, compared to 0.77% and 5.19%, respectively, for the first quarter of 2018;
  • Hilltop’s book value per common share increased to $21.23 at March 31, 2019, compared to $20.83 at December 31, 2018;
  • Hilltop’s total assets were $13.5 billion at March 31, 2019, compared to $13.7 billion at December 31, 2018;
  • Loans1, net of allowance for loan losses, increased to $6.5 billion compared to $6.3 billion at December 31, 2018;
  • Non-performing loans decreased to $30.9 million, or 0.38% of total loans at March 31, 2019, compared to $34.0 million, or 0.41% of total loans, at December 31, 2018;
  • Loans held for sale decreased by 24.0% from December 31, 2018 to $1.1 billion at March 31, 2019;
  • Total deposits were $8.3 billion at March 31, 2019, compared to $8.5 billion at December 31, 2018;
  • Hilltop maintained strong capital levels with a Tier 1 Leverage Ratio2 of 13.22% and a Common Equity Tier 1 Capital Ratio of 16.75% at March 31, 2019;
  • Hilltop’s net interest margin3 decreased to 3.69% for the first quarter of 2019, compared to 3.75% in the fourth quarter of 2018;
  • The provision for loan losses was $1.0 million during the first quarter of 2019, compared to $6.9 million in the fourth quarter of 2018;
  • For the first quarter of 2019, noninterest income was $252.5 million, compared to $235.1 million in the first quarter of 2018, a 7.4% increase;
  • For the first quarter of 2019, noninterest expense was $309.1 million, compared to $308.2 million in the first quarter of 2018, a 0.3% increase; and
  • Hilltop’s effective tax rate decreased to 22.6% during the first quarter of 2019, compared to 23.3% during the same period in 2018

_______________

1   “Loans” reflect loans held for investment excluding broker-dealer loans, net of allowance for loan losses, of $491.8 million and $578.2 million at March 31, 2019 and December 31, 2018, respectively.
2 Based on the end of period Tier 1 capital divided by total average assets during the quarter, excluding goodwill and intangible assets.
3 Net interest margin is defined as net interest income divided by average interest-earning assets.
 
 

Consolidated Financial and Other Information

                   
Consolidated Balance SheetsMarch 31,December 31,September 30,June 30,March 31,
(in 000's)20192018201820182018
Cash and due from banks $ 313,192 $ 644,073 $ 405,682 $ 353,432 $ 470,127
Federal funds sold 438 400 468 403 400
Assets segregated for regulatory purposes 156,851 133,993 220,115 128,417 198,170
Securities purchased under agreements to resell 65,205 61,611 164,656 229,172 244,978
Securities:
Trading, at fair value 703,295 745,466 660,314 634,197 756,151
Available for sale, at fair value 1,019,851 875,658 874,496 811,218 806,583
Held to maturity, at amortized cost 369,865 351,012 348,163 353,192 356,452
Equity, at fair value   19,343     19,679     21,555     21,218     20,876  
2,112,354 1,991,815 1,904,528 1,819,825 1,940,062
Loans held for sale 1,059,280 1,393,246 1,524,980 1,953,562 1,409,634
Loans held for investment, net of unearned income 7,011,679 6,930,458 6,940,306 6,545,630 6,387,413
Allowance for loan losses   (58,809 )   (59,486 )   (60,152 )   (61,970 )   (63,194 )
Loans held for investment, net 6,952,870 6,870,972 6,880,154 6,483,660 6,324,219
 
Broker-dealer and clearing organization receivables 1,651,199 1,440,287 1,491,507 1,614,951 1,660,720
Premises and equipment, net 210,333 237,373 236,172 172,911 173,637
Operating lease right-of-use assets 108,806 — — — —
Other assets 591,442 580,362 604,445 648,317 637,802
Goodwill 291,435 291,435 291,435 251,808 251,808
Other intangible assets, net   35,965     38,005     40,394     32,716     34,569  
Total assets $ 13,549,370   $ 13,683,572   $ 13,764,536   $ 13,689,174   $ 13,346,126  
 
Deposits:
Non interest-bearing $ 2,490,144 $ 2,560,750 $ 2,525,677 $ 2,468,332 $ 2,565,825
Interest-bearing   5,807,975     5,975,406     5,764,556     5,345,290     5,393,897  
Total deposits 8,298,119 8,536,156 8,290,233 7,813,622 7,959,722
Broker-dealer and clearing organization payables 1,490,227 1,294,925 1,396,401 1,409,904 1,504,172
Short-term borrowings 914,525 1,065,807 1,216,649 1,610,735 1,064,325
Securities sold, not yet purchased, at fair value 69,354 81,667 179,582 251,581 255,551
Notes payable 225,372 228,872 220,192 227,736 202,700
Operating lease liabilities 118,452 — — — —
Junior subordinated debentures 67,012 67,012 67,012 67,012 67,012
Other liabilities   351,178     435,240     430,309     392,171     367,188  
Total liabilities 11,534,239 11,709,679 11,800,378 11,772,761 11,420,670
 
Common stock 938 936 946 946 960
Additional paid-in capital 1,491,585 1,489,816 1,504,467 1,502,105 1,526,867
Accumulated other comprehensive loss (1,062 ) (8,627 ) (14,722 ) (11,846 ) (9,698 )
Retained earnings 499,452 466,737 448,923 419,683 404,260
Deferred compensation employee stock trust, net 827 825 860 857 857
Employee stock trust   (213 )   (217 )   (252 )   (252 )   (254 )
Total Hilltop stockholders' equity 1,991,527 1,949,470 1,940,222 1,911,493 1,922,992
Noncontrolling interests   23,604     24,423     23,936     4,920     2,464  
Total stockholders' equity   2,015,131     1,973,893     1,964,158     1,916,413     1,925,456  
Total liabilities & stockholders' equity $ 13,549,370   $ 13,683,572   $ 13,764,536   $ 13,689,174   $ 13,346,126  
 
                   
Three Months Ended
Consolidated Income StatementsMarch 31,December 31,September 30,June 30,March 31,
(in 000's, except per share data)201920182018   20182018
Interest income:
Loans, including fees $ 110,870 $ 119,322 $ 113,535 $ 103,924 $ 99,944
Securities borrowed 16,859 16,782 16,346 17,486 16,300
Securities:
Taxable 15,616 15,512 11,994 12,516 10,953
Tax-exempt 1,498 1,648 1,717 1,697 1,772
Other   5,197   4,438   4,734     4,417   4,391  
Total interest income 150,040 157,702 148,326 140,040 133,360
 
Interest expense:
Deposits 17,106 14,838 12,353 10,136 8,675
Securities loaned 14,738 13,935 13,984 15,075 13,739
Short-term borrowings 5,471 7,476 7,831 6,466 4,043
Notes payable 2,641 2,627 2,702 2,437 2,497
Junior subordinated debentures 1,001 968 955 918 822
Other   152   143   160     160   164  
Total interest expense 41,109 39,987 37,985 35,192 29,940
 
Net interest income 108,931 117,715 110,341 104,848 103,420
Provision (recovery) for loan losses   951   6,926   (371 )   340   (1,807 )
Net interest income after provision (recovery) for loan losses 107,980 110,789 110,712 104,508 105,227
 
Noninterest income:
Net gains from sale of loans and other mortgage production income 96,139 90,628 116,243 132,478 105,767
Mortgage loan origination fees 21,873 26,615 27,004 29,318 20,626
Securities commissions and fees 35,969 36,984 36,968 38,320 38,717
Investment and securities advisory fees and commissions 20,160 26,260 23,487 21,965 18,354
Net insurance premiums earned 33,203 34,146 34,185 34,105 34,315
Other   45,124   23,883   31,810     23,248   17,364  
Total noninterest income 252,468 238,516 269,697 279,434 235,143
 
Noninterest expense:
Employees' compensation and benefits 189,898 179,881 205,575 200,632 182,600
Occupancy and equipment, net 28,023 30,512 29,015 27,893 27,830
Professional services 22,942 26,793 27,984 26,020 24,704
Loss and loss adjustment expenses 14,926 20,694 18,712 24,409 15,532
Other   53,296   52,939   54,425     59,563   57,536  
Total noninterest expense 309,085 310,819 335,711 338,517 308,202
 
Income before income taxes 51,363 38,486 44,698 45,425 32,168
Income tax expense   11,586   8,928   7,600     11,034   7,488  
Net income 39,777 29,558 37,098 34,391 24,680
Less: Net income attributable to noncontrolling interest   991   1,443   1,293     1,311   239  
Income attributable to Hilltop $ 38,786 $ 28,115 $ 35,805   $ 33,080 $ 24,441  
 
Earnings per common share:
Basic $ 0.41 $ 0.30 $ 0.38 $ 0.35 $ 0.25
Diluted $ 0.41 $ 0.30 $ 0.38 $ 0.35 $ 0.25
 
Cash dividends declared per common share $ 0.08 $ 0.07 $ 0.07 $ 0.07 $ 0.07
 
Weighted average shares outstanding:
Basic 93,669 94,092 94,554 95,270 95,985
Diluted 93,669 94,130 94,610 95,358 96,146
 
                           
Three Months Ended March 31, 2019
Segment ResultsMortgageAll Other andHilltop
(in 000's)BankingBroker-DealerOriginationInsuranceCorporateEliminationsConsolidated
Net interest income (expense) $ 92,690 $ 12,850 $ (467 ) $ 642 $ (1,330 ) $ 4,546 $ 108,931
Provision (recovery) for loan losses 1,025 (74 ) — — — — 951
Noninterest income 10,621 91,307 118,033 36,492 538 (4,523 ) 252,468
Noninterest expense   60,726   87,807     114,677     30,338   15,562     (25 )   309,085
Income (loss) before income taxes $ 41,560 $ 16,424   $ 2,889   $ 6,796 $ (16,354 ) $ 48   $ 51,363
 
                             
Three Months Ended
March 31,December 31,September 30,June 30,March 31,
Selected Financial Data20192018201820182018
 

Hilltop Consolidated:

Return on average stockholders' equity 8.04% 5.76% 7.41% 6.95% 5.19%
Return on average assets 1.21% 0.86% 1.07% 1.03% 0.77%
Net interest margin (1) 3.69% 3.75% 3.48% 3.46% 3.52%
Net interest margin (taxable equivalent) (2):
As reported 3.70% 3.76% 3.49% 3.47% 3.53%
Impact of purchase accounting 32 bps 43 bps 28 bps 29 bps 36 bps
Book value per common share ($) 21.23 20.83 20.51 20.21 20.02
Shares outstanding, end of period (000's) 93,821 93,610 94,594 94,571 96,048
Dividend payout ratio (3) 19.32% 23.43% 18.48% 20.16% 27.49%
 

Banking Segment:

Net interest margin (1) 4.24% 4.50% 4.13% 4.11% 4.15%
Net interest margin (taxable equivalent) (2):
As reported 4.25% 4.51% 4.14% 4.12% 4.16%
Impact of purchase accounting 44 bps 61 bps 39 bps 42 bps 51 bps
Accretion of discount on loans ($000's) 8,735 12,737 8,147 8,343 9,867
Net charge-offs (recoveries) ($000's) 1,628 7,592 1,447 1,564 (1,315)
Return on average assets 1.34% 1.31% 1.19% 1.09% 1.31%
Fee income ratio 10.28% 10.12% 10.69% 10.79% 10.51%
Efficiency ratio 58.78% 56.79% 63.71% 66.47% 61.32%
Employees' compensation and benefits ($000's) 32,171 31,955 36,878 32,442 30,811
 

Broker-Dealer Segment:

Net revenue ($000's) (4) 104,157 89,750 95,266 86,479 81,097
Employees' compensation and benefits ($000's) 63,075 54,249 59,535 52,418 52,265
Variable compensation expense ($000's) 34,581 31,744 33,574 26,036 24,594
Compensation as a % of net revenue 60.6% 60.4% 62.5% 60.6% 64.4%
Pre-tax margin (5) 15.77% 12.13% 10.42% 9.45% 4.44%
 

Mortgage Origination Segment:

Mortgage loan originations - volume ($000's):
Home purchases 2,050,760 2,586,677 3,237,444 3,615,991 2,358,692
Refinancings   396,282   384,990   416,201   491,384   601,105
Total mortgage loan originations - volume 2,447,042 2,971,667 3,653,645 4,107,375 2,959,797
Mortgage loan sales - volume ($000's) 2,711,114 3,008,793 4,015,051 3,526,603 3,185,438
Net gains from mortgage loan sales (basis points) 330 334 330 317 333
Mortgage servicing rights asset ($000's) (6) 62,049 66,102 68,804 57,373 63,957
Employees' compensation and benefits ($000's) 79,043 84,334 102,025 111,713 91,059
Variable compensation expense ($000's) 38,929 44,529 58,686 66,531 46,292
 

Insurance Segment:

Loss and LAE ratio 45.0% 60.6% 54.7% 71.6% 45.3%
Expense ratio   41.5%   37.9%   38.8%   39.5%   39.9%
Combined ratio 86.5% 98.5% 93.5% 111.1% 85.2%
Employees' compensation and benefits ($000's) 3,202 2,670 2,595 2,954 3,255

_______________

(1)   Net interest margin is defined as net interest income divided by average interest-earning assets.
(2) Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Taxable equivalent adjustments are based on the applicable 21% federal income tax rate for all periods presented. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. The taxable equivalent adjustments to interest income for Hilltop (consolidated) were $0.2 million, $0.3 million, $0.2 million, $0.2 million, and $0.3 million, respectively, for the periods presented and for the banking segment were $0.2 million for each of the periods presented.
(3) Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(4) Net revenue is defined as the sum of total broker-dealer net interest income plus total broker-dealer noninterest income.
(5)

Pre-tax margin is defined as income before income taxes divided by net revenue.

(6) Reported on a consolidated basis and therefore does not include mortgage servicing rights assets related to loans serviced for the banking segment, which are eliminated in consolidation.
 
                             
March 31,December 31,September 30,June 30,March 31,
Capital Ratios20192018201820182018
Tier 1 capital (to average assets):
PlainsCapital 12.61 % 12.47 % 11.86 % 12.80 % 13.01 %
Hilltop 13.22 % 12.53 % 12.40 % 12.90 % 13.26 %
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital 13.89 % 13.90 % 13.88 % 14.59 % 15.39 %
Hilltop 16.75 % 16.58 % 16.95 % 17.61 % 18.60 %
Tier 1 capital (to risk-weighted assets):
PlainsCapital 13.89 % 13.90 % 13.88 % 14.59 % 15.39 %
Hilltop 17.22 % 17.04 % 17.42 % 18.10 % 19.11 %
Total capital (to risk-weighted assets):
PlainsCapital 14.60 % 14.63 % 14.63 % 15.38 % 16.25 %
Hilltop 17.64 % 17.47 % 17.87 % 18.58 % 19.63 %
 
                             
March 31,December 31,September 30,June 30,March 31,
Non-Performing Loans Portfolio Data20192018201820182018
Loans accounted for on a non-accrual basis ($000's):
Commercial real estate 5,332 5,324 7,506 14,256 13,674
Commercial and industrial 13,350 14,870 21,323 22,815 20,768
Construction and land development 1,473 3,278 3,402 569 595
1-4 family residential 10,662 10,437 4,476 4,273 4,297
Mortgage warehouse — — — — —
Consumer 38 41 45 49 52
Broker-dealer — — — — —
Covered   —     —     5,777     5,277     5,849  
30,855 33,950 42,529 47,239 45,235
 
Non-performing loans as a % of total loans 0.38 % 0.41 % 0.50 % 0.56 % 0.58 %
 
Other real estate owned ($000's) 23,066 27,578 32,518 37,824 38,354
 
Other repossessed assets ($000's) 30 68 99 168 246
 
Non-performing assets ($000's) 53,951 61,596 75,146 85,231 83,835
 
Non-performing assets as a % of total assets 0.40 % 0.45 % 0.55 % 0.62 % 0.63 %
 
Non-PCI loans past due 90 days or more and still accruing ($000's) 77,045 83,131 80,664 74,060 77,590
 
Troubled debt restructurings included in accruing loans held for investment ($000's) 1,313 1,339 1,362 1,389 1,404
 
                         
Three Months Ended March 31,
20192018
AverageInterestAnnualizedAverageInterestAnnualized
OutstandingEarned orYield orOutstandingEarned orYield or
Net Interest Margin (Taxable Equivalent) DetailsBalancePaidRateBalancePaidRate
Assets
Interest-earning assets
Loans held for sale $ 1,015,010 $ 12,487 4.92 % $ 1,294,245 $ 14,613 4.52 %
Loans held for investment, gross (1) 6,843,343 98,383 5.76 % 6,308,756 85,331 5.42 %
Investment securities - taxable 1,792,501 15,584 3.48 % 1,613,608 10,928 2.71 %
Investment securities - non-taxable (2) 221,602 1,658 2.99 % 258,732 2,030 3.14 %
Federal funds sold and securities purchased under agreements to resell 66,346 388 2.37 % 189,623 481 1.03 %
Interest-bearing deposits in other financial institutions 505,582 3,151 2.53 % 632,727 2,478 1.59 %
Securities borrowed 1,446,412 16,859 4.66 % 1,537,306 16,300 4.24 %
Other   61,263     1,671 11.01 %   70,854     1,452 8.27 %
Interest-earning assets, gross (2) 11,952,059 150,181 5.03 % 11,905,851 133,613 4.50 %
Allowance for loan losses   (59,549 )   (65,202 )
Interest-earning assets, net 11,892,510 11,840,649
Noninterest-earning assets   1,419,075     1,228,058  
Total assets $ 13,311,585   $ 13,068,707  
 
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits $ 5,825,886 $ 17,106 1.19 % $ 5,494,657 $ 8,675 0.64 %
Securities loaned 1,295,002 14,738 4.62 % 1,365,081 13,739 4.08 %
Notes payable and other borrowings   1,065,432     9,265 3.51 %   1,195,993     7,526 2.54 %
Total interest-bearing liabilities 8,186,320 41,109 2.03 % 8,055,731 29,940 1.50 %
Noninterest-bearing liabilities
Noninterest-bearing deposits 2,520,057 2,419,725
Other liabilities   623,710     680,543  
Total liabilities 11,330,087 11,155,999
Stockholders’ equity 1,958,531 1,911,160
Noncontrolling interest   22,967     1,548  
Total liabilities and stockholders' equity $ 13,311,585   $ 13,068,707  
       
Net interest income (2) $ 109,072 $ 103,673
Net interest spread (2) 3.00 % 2.99 %
Net interest margin (2) 3.70 % 3.53 %

_______________

(1)   Average balance includes non-accrual loans.
(2) Presented on a taxable equivalent basis with annualized taxable equivalent adjustments based on the applicable 21% federal income tax rates for the periods presented. The adjustment to interest income was $0.2 million and $0.3 million for the three months March 31, 2019 and 2018.
 

Conference Call Information

Hilltop will host a live webcast and conference call at 8:00 AM Central (9:00 AM Eastern) on Friday, April 26, 2019. Hilltop President and CEO, Jeremy B. Ford, and Hilltop CFO, William B. Furr, will review first quarter 2019 financial results. Interested parties can access the conference call by dialing 1-877-508-9457 (domestic) or 1-412-317-0789 (international). The conference call also will be webcast simultaneously on Hilltop’s Investor Relations website (http://ir.hilltop-holdings.com).

About Hilltop

Hilltop Holdings is a Dallas-based financial holding company. Its primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank. PlainsCapital Bank’s wholly owned subsidiary, PrimeLending, provides residential mortgage lending throughout the United States. Hilltop Holdings’ broker-dealer subsidiaries, Hilltop Securities Inc. and Hilltop Securities Independent Network Inc., provide a full complement of securities brokerage, institutional and investment banking services in addition to clearing services and retail financial advisory. Through Hilltop Holdings’ other wholly owned subsidiary, National Lloyds Corporation, it provides property and casualty insurance through two insurance companies, National Lloyds Insurance Company and American Summit Insurance Company. At March 31, 2019, Hilltop employed approximately 5,100 people and operated approximately 450 locations in 44 states. Hilltop Holdings’ common stock is listed on the New York Stock Exchange under the symbol "HTH." Find more information at Hilltop-Holdings.com, PlainsCapital.com, PrimeLending.com, Nationallloydsinsurance.com and Hilltopsecurities.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements anticipated in such statements. Forward-looking statements speak only as of the date they are made and, except as required by law, we do not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning such things as our plans, objectives, strategies, expectations, intentions and other statements that are not statements of historical fact, and may be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “might,” “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view” or “would” or the negative of these words and phrases or similar words or phrases. For a discussion of certain factors that could cause our actual results to differ materially from those described in the forward-looking statements, please see the risk factors discussed in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and other reports that are filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.

Investor Relations Contact:
Erik Yohe
214-525-4634
eyohe@hilltop-holdings.com

Source: Hilltop Holdings Inc.

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