- Net Income: $20 million, or $0.31 per diluted share.
- Return on Average Assets: 0.6%.
- Return on Average Equity: 3.8%.
- PlainsCapital Bank Pretax Income: $33 million on $12.7 billion of assets.
- Average Loans at PlainsCapital Bank: Increased by $44 million.
- Provision for Credit Losses: $11 million.
- Net Interest Margin: Increased by 10 basis points to 3.1%.
- PrimeLending Gain on Sale Rate: 233 basis points, up 12 basis points from Q1.
- PrimeLending Non-variable Compensation and Segment Operating Costs: Declined by $11 million compared to Q2 2023.
- Hilltop Securities Pretax Income: $7 million on net revenues of $104 million.
- Public Finance Services Net Revenues: Increased by 3%.
- Municipal Advisory Fees Revenues: Increased by 24%.
- Underwriting Revenues: Declined by 54%.
- Structured Finance Net Revenues: Declined by $4.5 million compared to Q2 2023.
- Wealth Management Net Revenues: Declined by $2.4 million compared to Q1 2023.
- Fixed Income Services Revenue: Declined by $5.4 million compared to Q2 2023.
- Common Equity Tier 1 Capital Ratio: 19.5%.
- Tangible Book Value per Share: Increased by $0.28 to $28.63.
- Shareholder Returns: $21 million ($11 million in dividends and $10 million in share repurchases).
- Allowance for Credit Losses: Increased by $11 million to $115 million.
- Net Interest Income: $104 million, decreased by 12% year-over-year.
- Average Total Deposits: Approximately $10.4 billion, declined by 7% year-over-year.
- Non-interest Income: $193 million.
- Non-interest Expenses: Decreased by $11 million to $256.5 million.
- Average HFI Loans: $7.9 billion.
- Non-performing Assets (NPA): Increased by $39 million to $109 million.
- Net Charge-offs: Less than $100,000.
- Allowance for Credit Loss Coverage: 1.47%.
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hilltop Holdings Inc (HTH, Financial) reported net income of approximately $20 million, or $0.31 per diluted share for the second quarter of 2024.
- All three business segments posted profitable pretax operating results despite high interest rates and an inverted yield curve.
- PlainsCapital Bank generated $33 million of pretax income on $12.7 billion of assets, with a return on average assets of 0.8%.
- PrimeLending saw positive pretax results with higher origination volumes and a gain on sale to third parties' rate of 233 basis points.
- Hilltop Securities generated pretax income of $7 million on net revenues of $104 million, with a 3% increase in net revenues from public finance services.
Negative Points
- Hilltop Holdings Inc (HTH) experienced a year-over-year decline in net interest income of 12%, driven by higher yields on deposits and declining earning assets.
- The company reported a provision for credit losses of $11 million, primarily due to specific reserves on two relationships in the auto lending subsector.
- Average deposit balance declined by 2% during the quarter, primarily due to the intentional runoff of $150 million in broker deposits.
- Structured finance net revenues declined by $4.5 million from the second quarter of 2023 due to depressed origination volumes.
- Non-interest expenses decreased by $11 million compared to the same period in the prior year, reflecting cost-cutting measures but indicating ongoing challenges in managing expenses.
Q & A Highlights
Q: Can you talk a little bit more about why you think loan growth might be weaker than last quarter's guidance?
A: William Furr, Executive Vice President, Chief Financial Officer: The linked period growth was largely driven by our mortgage warehouse lending business, which is seasonal. We expect this to move lower through the balance of the year. On the commercial side, while our pipelines are up on a linked quarter basis, they are down year-on-year. The current structures with the required yields and pricing necessitate additional equity from customers, which is taking longer to materialize.
Q: What are the capital priorities given the excess capital you have?
A: Erik Yohe, Chief Strategy Officer: We have no real change in priorities. We have been returning money to shareholders through dividends and share repurchases. We are also evaluating capital and liquidity priorities each quarter, especially with $150 million of senior debt coming due in the first quarter of next year and another $50 million of debt that's callable.
Q: Do you expect any distressed or failed deals in your markets that might allow you to be more opportunistic?
A: Jeremy Ford, President, Chief Executive Officer, Director, Chief Executive Officer of PlainsCapital Bank: The stress from interest rates, deposit costs, and liquidity seems to be working itself out. Any future distress could arise from credit issues, but overall, the Texas economy and banking system are fairly strong right now.
Q: Can you provide some color on the decline in non-interest-bearing deposits during the quarter?
A: William Furr, Executive Vice President, Chief Financial Officer: Customers with excess cash are moving funds to interest-bearing accounts. Seasonally, Q2 sees outflows due to tax payments and other distributions. We believe non-interest-bearing deposits will likely drift lower over the next six to 12 months if rates remain elevated.
Q: How has the core bank's asset sensitivity changed?
A: William Furr, Executive Vice President, Chief Financial Officer: We peaked at 12% asset sensitivity 18 months ago and have moved to about 5%. We expect to move to the 2% to 4% level, aiming for a more neutral position. We have worked diligently to protect our net interest income over time.
Q: What drove the decrease in the allowance for credit losses on non-owner occupied office loans?
A: William Furr, Executive Vice President, Chief Financial Officer: One significant credit that hadn't stabilized as of Q1 2024 reached stabilization and exceeded cash flow covenants by Q2 2024, allowing it to be upgraded.
Q: Can you provide more details on the auto lending portfolio and the recent credit migrations?
A: William Furr, Executive Vice President, Chief Financial Officer: We have been reducing exposure to this portfolio due to higher interest rates and declining used car values. The two credits that impacted us this quarter had idiosyncratic issues exacerbated by these factors. We have been banking these customers for over 20 years and 13-14 years, respectively.
Q: How do you expect gain on sale margins in the mortgage segment to evolve if rates come down?
A: William Furr, Executive Vice President, Chief Financial Officer: Historically, gain on sale margins increase as rates come down. However, the largest block of customers has mortgages under 5%, so initial rate reductions may not lead to a significant rebound in refinance activity. We expect a muted impact until the Fed reduces rates by a couple of hundred basis points.
Q: Can you explain the significant range in the NII guidance for the full year?
A: William Furr, Executive Vice President, Chief Financial Officer: The wide range is due to the variability in deposit repricing. The largest and most impactful driver of our NII outlook is deposit costs. If deposit costs remain stable, we will be toward the middle of the guidance range; if they increase, we will be at the lower end.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
