Hilltop Holdings Inc.Earnings PresentationQ3 2022 October 21, 2022 |
Preface 2 Additional Information Corporate Headquarters6565 Hillcrest AveDallas, TX 75205Phone: 214-855-2177www.hilltop-holdings.com Please Contact:Erik YohePhone: 214-525-4634Email: eyohe@hilltop-holdings.comFORWARD-LOOKING STATEMENTSThis presentation and statements made by representatives of Hilltop Holdings Inc. (“Hilltop” or the “Company”) during the courseof this presentation include “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 outlook, our business strategy, our financial condition, our efforts to make strategic acquisitions, our revenue, our liquidity and sources of funding, market trends, operations and business, taxes, the impact of natural disasters or public health emergencies, such as the current coronavirus(“COVID-19”) global pandemic, information technology expenses, capital levels, mortgage servicing rights (“MSR”) assets, stock repurchases, dividend payments,expectations concerning mortgage loan origination volume, servicer advances and interest rate compression, expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, total expenses, anticipated changes in our revenue, earnings, or taxes, the effects of government regulation applicable to our operations, the appropriateness of, and changes in, our allowance for credit losses and provision for (reversal of) credit losses, future benchmark rates and economic growth, anticipated investment yields, expected accretion of discount on loans in future periods, the collectability of loans, cybersecurity incidents, the outcome of litigation, and our other plans, objectives, strategies, expectations and intentions and other statements that are not statements of historical fact, and may be identified by words such as “anticipates,” “believes,” “building”, “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance”, “intends,” “may,” “might,” “outlook”, “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view” or “would” or the negative of these words and phrases or similar words or phrases. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (i) the credit risks of lending activities, including our ability to estimate credit losses and increases to the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs; (ii) effectiveness of our data security controls in the face of cyber attacks; (iii) changes in general economic, market and business conditions in areas or markets where we compete, including changes in the price of crude oil; (iv) risks associated with concentration in real estate related loans; (v) changes in the interest rate environment and transitions away from LIBOR; (vi) the effects of our indebtedness on our ability to manage our business successfully, including the restrictions imposed by the indenture governing our indebtedness; (vii) changes in state and federal laws, regulations or policies affecting one or more of our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act; (viii) cost and availability of capital; (ix) changes in key management; (x) competition in our banking, broker-dealer and mortgage origination segments fromother banks and financial institutions, as well as investment banking and financial advisory firms, mortgage bankers, asset-based non-bank lenders and government agencies; (xi) legal and regulatory proceedings; (xii) risks associated with merger and acquisition integration; and (xiii) our ability to use excess capital in an effective manner. For further discussion of such factors, see the risk factors described in our most recent Annual Report on Form 10-K, and subsequent Quarterly Reports on Form 10-Q and other reports, that we have filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement. The information contained herein is preliminary and based on Company data available at the time of the earnings presentation.It speaks only as of the particular date or dates included in the accompanying slides. Hilltop Holdings does not undertake an obligation to, and disclaims any duty to, update any of the information herein. |
Q3 2022 3Investor Highlights –Notes:(1)Average Bank Loans HFI reflect consolidated loans held for investment excluding margin loans from the broker-dealer business.(2)Mortgage Bankers Association Forecast, September 19, 2022. •PlainsCapital Bank generated $63.6 million in pre-tax income during Q3 2022, an increase of $0.7 million from Q3 2021•Average bank loans HFI1increased from Q2 2022 by $158 million, or 2%, as 1-4 Family PrimeLending Retained Mortgages and growth in our CRE portfolio more than offset lower Mortgage Warehouse Lending during the period •Average bank deposits decreased from Q2 2022 by $852 million, or 7%, as customers have moved money market and interest-earning checking balances into higher yielding assets•Bank net interest margin of 3.43% increased by 46 basis points from Q2 2022 as loan yields have increased and deposit betas of 25% have been in line with expectations •PrimeLending incurred a $23.1 million pre-tax loss during Q3 2022, a decrease in profitability of $85.3 million from Q3 2021•Mortgage origination volume in Q3 2022 was $3.0 billion, a decline of 46% from Q3 2021; overall industry volume was expected to decline approximately 55% over the same period2•Gain-on-sale of loans to third parties declined by 132 basis points from Q3 2021 to 227 basis points for Q3 2022 as interest rates have increased, volumes have declined, and pricing has remained very competitive •Headcount at PrimeLending has declined by 642, or 23%, since October 2021 as the organization continues efforts to reset 0perations and back-office departments to better align with a lower volume mortgage market •HilltopSecuritiesgenerated pre-tax income of $17.5 million during Q3 2022, stable relative to Q3 2021•Expense discipline and improved revenue in fixed income services and wealth management, particularly from sweep deposits, helped to offset a slower public finance and mortgage market during the period•Total headcount has declined by 52, or 7%, since October 2021 ROAA.86% EPS –Diluted$0.30 ROAE5.76% 6 ..2 6% $ 32.1 $ 0.500.79 % Net IncomeMM |
$23.52 $24.77 $25.93 $26.93 $27.77 $28.37 $27.47 $27.08 $27.13 19.85% 18.97% 19.63% 20.22% 21.28% 21.22% 21.27% 17.24% 17.46% $0.09 $0.09 $0.12 $0.12 $0.12 $0.12 $0.15 $0.15 $0.15 ‐20.00% 0.00% 20.00% $‐ $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 Q3 2020 Q4 2020 Q1 2021 Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 Tangible Book Value Per Share (Tangible Common Equity / Shares Outstanding) Common Equity Tier 1 risk based ratio Dividends per shareCapital Highlights –Q3 2022 4 Capital Management and Tangible Book Value Growth TBVPS2% Versus9/30/217% CAGRSince 9/30/20•During the quarter, HTH returned $9.7 million of capital to shareholders through dividends •Moderate increase in tangible book value per common share during the third quarter of 2022 was a result of an increase in net retained earnings which was largely offset by negative market value adjustments in the AFS portion of the investment portfolio11Notes:(1)Tangible common equity and tangible book value per common share (TBVPS) are non-GAAP financial measures. For a reconciliation of tangible common equity and tangible book value per share to the comparable GAAP measures, see the appendix.(2)At period end.22 |
5Hilltop Holdings –Financial Summary $ in Millions, except EPSIncome Statement and Key MetricsQ3 2022Q2 2022QoQ%Q3 2021YoY%Net interest income$123.5$112.110%$105.118%Noninterest income207.0239.3(13%)367.9(44%) Noninterest expenses288.7298.5(3%)355.2(19%)Efficiency ratio87.4%85.0%75.1%Pre-provision net revenue141.752.8(21%)117.9(65%)Net charge offs $2.7$1.2124%($0.1)NRNet ACL build (release)(3.5)4.1(186%)(5.7)(38%)Provision for (reversal of) credit losses(0.8)5.3(115%)(5.8)(87%) Income before income taxes42.547.5(10%)123.7(66%) Net income33.335.3(6%)95.4(65%)Minority interest1.22.1(43%)2.5(53%)Income attributable to Hilltop$32.1$33.3(4%)$92.9(65%)Return on average assets0.79%0.80%2.13% Return on average equity 6.26%5.82%14.96%EPS - Diluted$0.50$0.4511%$1.15(57%)EOP Shares outstanding (in thousands)64,59164,5760%78,959(18%)Average assets $16,669$17,791(6%)$17,750(6%)EOP Assets16,61516,716(1%)17,990(8%) EOP Loans HFI, net7,8527,8350%7,4435% EOP Deposits11,35211,921(5%)12,132(6%) Notes:(1)Pre-provision net revenue is calculated as the sum of net interest income and noninterest income less noninterest expense (except provision for loan losses). |
$109.5$91.4$91.2$95.3$91.8($2.7)($0.2)($3.6)$3.0 1.45% 1.16% 1.17% 1.20% 1.16%0.00%0.50%1.00%1.50% 2.00% 2.50% 3.00% 3.50% 4.00%$0.0$20.0$40.0$60.0$80.0$100.0$120.09/30/202112/31/20213/31/20226/30/2022Net Charge-OffSpecific ReservesCollective -EconomicConditionsCollective - PortfolioChanges9/30/2022 6Hilltop Holdings –Allowance for Credit Losses Allowance for Credit Losses at Period End 9/30/22 Reserve Composition($ in millions)ACL / Total Loans HFI Commentary•Applied Moody’s Analytics September 2022 single macroeconomic alternative (S7) scenario for economic forecast•Reserve builds (releases) driven by new loan production, credit performance and macroeconomic variable adjustments over time•ACL % of Loans HFI excluding broker dealer margin loans and mortgage warehouse loans equated to 1.25% as of September 30, 2022 ($ in millions)ReserveACL/Loans HFICommercial real estate$63.21.91%Commercial and industrial$16.01.11%Construction and land development$4.80.51% 1-4 family residential$6.60.41%Consumer$0.61.95%Broker-dealer$0.50.13%Mortgage warehouse lending$0.10.05%Total Reserve$91.81.16% |
2.53%2.44%2.36%2.75%3.19%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 7Hilltop Holdings –Net Interest Income & Margin Net Interest Margin2 Net Interest Margin Rollforward Net Interest Income $105.1 $104.3 $100.0 $112.1 $123.5 $80.0 $85.0 $90.0 $95.0 $100.0 $105.0 $110.0 $115.0 $120.0 $125.0 $130.0Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 2.75%Yield on Cash and Due Balances0.29% Loans HFI Yield Increase0.27%Loans HFS0.04%Securities Portfolio Yield Increase0.04%Cost of Deposits(0.17%)Other(0.03%)Q3 20223.19%Q2 2022 Key Drivers & Statistics Q3'21Q2'22Q3'22($ in millions, except as noted)HTH Consolidated Average Earning Assets ($B)$16.5$16.4$15.4Banking Accretion Income$3.3$3.0$2.9PPP Balance (period end)$133$7$1PPP Interest & Fee Income$5.1$1.3$0.2 Cash and Due (Avg. Balance)$2,095$2,585$1,796Mortgage Loans Held for Sale (period end)$2,109$1,492$1,004 ($ in millions) |
8Hilltop Holdings –Net Interest Income Rate Impacts -9%-4%4%7%-10%-5%0%5%10%-100-50+50+100Interest Rate Change (Basis Points) Estimated Impact on 12-month Net Interest Income1Note:(1)Impact assumes instantaneous change to interest rates. Assumes interest rate floor at 1 basis point. Bank Loans HFI –Fixed vs. Variable Rate at 9/30/22 Cash and Securities Fixed vs Variable Interest Bearing Deposit and Fed Funds Rate•Q1 2016 through Q3 2022 Fed and HTH Deposit Rates•Deposit Beta Modeled 50% through the cycle 55%10%35% Fixed Rate Variable rate at or below floors Variable rate above floor |
$242.3 $192.3 $143.2 $140.1 $98.2 $116.1 $82.9 $60.7 $87.7 $100.8 $11.7 $11.8 $12.8 $12.5 $12.2 ($2.2)($2.2)($0.2)($0.9)($4.2)$367.9 $284.8 $216.4 $239.3 $207.0 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 PrimeLending HilltopSecurities PlainsCa p ital Bank Cor p orate / Othe r 9Hilltop Holdings –Noninterest Income Year-over-Year Noninterest Income ($MM) Noninterest Income Key Drivers & Statistics($ in millions) Q3 2021$367.9Mortgage Production Income & Fees(144.0) Securities and Investment Advisory Fees & Commissions(15.0) Other Income(2.0)Q3 2022$207.0 Q3'21Q2'22Q3'22Broker Dealer TBA Lock Volume ($mm)$1,775$677$1,301Mortgage Origination Volume ($B)$5.6$3.8$3.0 Net gains from mortgage loan sales (bps):Loans sold to third parties359260227 Impact of loans sold to bank(13)(7)(9)As reported346253218 |
$213.5$213.0$203.5$204.5$201.9$141.7$109.1$82.9$94.0$86.9$355.2$322.2$286.4$298.5$288.775.1%82.8%90.5%85.0%87.4%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 Variable Compensation Expenses Other Than Variable Compensation Efficiency Ratio 10Hilltop Holdings –Noninterest Expenses Year-over-Year Noninterest Expense ($MM) Noninterest Expenses and Efficiency Ratio Key Drivers & StatisticsNote:(1)Efficiency Ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. 1($ in millions) Q3 2021$355.2Compensation and Benefits(58.2)Occupancy and Equipment(0.4) Professional Services(3.9) Other Expenses(3.9)Q3 2022$288.7 Q3'21Q2'22Q3'22Banking Full-Service Branches595859 Efficiency Ratio (Bank Only)48.8%50.4%48.9% Mortgage Variable Compensation ($mm)$88.2$56.5$44.3Variable Comp / Originated Volume1.58%1.48%1.46% Efficiency Ratio (PrimeLending Only)74.0%95.9%124.2%Broker-Dealer Variable Compensation ($mm)$53.5$37.5$42.6Compensation / Net Revenue 65.1%64.3%61.5% |
26%16%20%12%21%5% Commercial real estate - Non-owneroccupied Commercial real estate - Owner occupied Commercial and industrial Construction and land development 1-4 family residential & Consumer Margin loans at Broker-Dealer $5.8 $5.8 $5.9 $6.1 $6.1 $0.6 $0.7 $0.5 $0.5 $0.4 $0.7 $0.9 $1.0 $1.1 $1.2 $7.6 $7.9 $7.8 $7.9 $7.9 $0.5 $0.4 $0.3 $0.3 $0.2 Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 Mortgage Warehouse Lending 1 - 4 Family PrimeLending Retained Mortgages Broker-Dealer Loans All Other Loans 11Notes: (1) 1-4 Family PrimeLending Retained Mortgages are loans purchased at par by PlainsCapital Bank from PrimeLending. These areexclusive of the 1-4 family residential mortgages originated through PlainsCapital Bank. The sum of the period amounts may not equal the total amounts due to rounding. Loan Mix at Period EndHilltop Holdings –Loans Key Drivers & Statistics Q3'21Q2'22Q3'22Average Loans HFI Balance ($B)$7.5$7.8$7.9Annualized Loan HFI Yield %4.33%4.32%4.75% Gross Loans HFI by Type at 9/30/22($ in billions)1 |
1.8x1.8x2.1x2.7x2.6x 1.58% 1.28% 1.25% 1.27% 1.21%0.00%0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80%1.0x1.5x2.0x2.5x3.0x3.5x4.0xQ3 2021Q4 2021Q1 2022Q2 2022Q3 2022 ACL/Bank NPLs ACL/Bank Loans HFI (62)(405)282 1,223 2,735 0.00% -0.01% 0.02% 0.07% 0.15%-1.00%-0.50%0.00%0.50%1.00%(1,000)01,0002,0003,0004,0005,0006,0007,0008,000Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022($000) NCOs NCOs/Avg. Bank Loans HFI 4.1%3.3%2.8%2.5%2.6%0.1%0.0%4.2%3.3%2.8%2.5%2.7%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022% of Bank Loans Classified Special Mention $83,801 $53,982 $46,449 $37,197 $36,260 1.21% 0.76% 0.64% 0.50% 0.48%0.00%0.25% 0.50% 0.75%1.00%1.25% 1.50% 1.75%$0$25,000$50,000$75,000$100,000$125,000Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 Total NPAs Total NPAs/(Bank Loans HFI + OREO) 12Hilltop Holdings –Asset Quality Criticized Loans Non-Performing AssetsNotes: The sum of the period amounts may not equal the total amounts due to rounding. Figures represent bank asset quality metrics only (excludes Loans HFS and Broker Dealer Margin Loans). (1) Total NPAs included non-accrual loans, accruing TDRs, OREO and other repossessed assets. Net Charge-Offs (Recoveries) Allowance for Credit Losses11 |
$6.7 $7.2 $7.0 $6.4 $6.1 $4.4 $4.6 $4.7 $4.6 $4.5 $0.8 $0.8 $0.8 $0.8 $0.7 $0.2 $0.2 $0.2 $0.1 $12.1 $12.8 $12.7 $11.9 $11.4 Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 Interest-Bearing Deposits Noninterest-Bearing Deposits Broker Dealer Sweep Deposits Brokered Deposits 13Notes: The sum of the period amounts may not equal the total amounts due to rounding.(1)Annualized. (2)‘Other’ includes Savings and Brokered Deposits. Deposit Mix at Period EndHilltop Holdings –Deposits Key Drivers & Statistics Q3'21Q2'22Q3'22Average Deposits ($B)$11.9$12.3$11.7Cost of Interest-Bearing Deposits10.28%0.28%0.70%Cost of Brokered Deposits10.33%0.35%2.17%Cost of Total Deposits10.18%0.18%0.43% Interest-Bearing Deposits by Type at 9/30/22($ in billions) 2 |
14Hilltop Holdings –2022 Outlook OutlookLoan Growth (Full year average HFI loan growth)•1 –4 family loan retention $25 –$75 million per month, throughout the remainder of 2022•Full year average bank loan growth 1% –3%, excluding PPP loans and retained mortgages, lower guidance due to mortgage warehouse balances decliningDeposit Decline(Full year average deposit decline)•Full year average total deposits decline 1% –3%Net Interest Income •NII growth 5% –9%, headwinds from lower PPP and accretion•Outlook assumes full year Fed Funds rate hike of 450-500bps•Purchase accounting accretion expected to decline by 40% -60% versus 2021 levels•Modeled ‘through the cycle’ IB deposit beta of 50%Noninterest Income•Mortgage gain on sale margins continue to be pressured as volumes decline across the industry, full year average 250 –270 bps (third party sales), market dependent•Full year mortgage origination volume $12 –$14 billion•Broker Dealer fees decline 5% –15%Noninterest Expense•Non-variable expenses decline 1% –4%•Variable expenses will follow revenue contribution from fee businessesProvision Expense / (Reversal)•Full year provision/ total loans HFI: 5 –20 basis pointsEffective Tax Rate (GAAP)•22 –24% full year basis |
Appendix 15 |
48.8% 54.2% 55.7% 50.4% 48.9%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 2.99% 2.81% 2.65% 2.97% 3.42%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022PlainsCapital Bank –HighlightsQ3 2022 16 Efficiency Ratio1Notes:(1)Efficiency Ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. Net Interest Margin Key HighlightsQ3 2021Q3 2022ROAA1.36%1.41%Full Service Branches (period end)5959Net Interest Margin 2.99%3.42%Assets ($B) (period end)$14.3$13.5 Summary Results($ in millions)Q3 2021Q3 2022Net Interest Income$100.0$110.9Provision for (reversal of) Credit Losses (5.8) (0.7)Noninterest Income11.712.2Noninterest Expense54.660.2Income Before Taxes$62.9$63.6 |
17PrimeLending –Highlights Gain on Sale OverviewNotes:(1)Gain on Sale calculated as net gains from sale of loans divided by sales volume. Reported Gain on Sale reflects impact of loansretained by PlainsCapital Bank.1 Mortgage Origination Volume $5.6 $5.0 $3.8 $3.8 $3.0 Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022 346347312253218359362321260227Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022150200 250 300 350 400 Reported Gain on Sale (bps) Gain on Sale of Loans Sold to Third Parties (bps) ($ in billions)Q3 2022 Summary Results($ in millions)Q3 2021Q3 2022Net Interest Income (Expense)($3.5)($2.9)Noninterest Income242.398.2 Noninterest Expense176.6118.3Income (Loss) Before Taxes$62.2($23.1) Key HighlightsQ3 2021Q3 2022Origination Volume ($mm)$5,595$3,043% Purchase71%93%Sales Volume ($mm)$6,196$3,420MSR Asset ($mm)(period end)$111$157 |
HilltopSecurities –HighlightsQ3 2022 18Notes:The sum of the period amounts may not equal the total amounts due to rounding. Presented net revenue by business line may differslightly from 10-Q due to grouping of certain business lines into ‘Other’. Net Revenues by Business Line Summary Results($ in millions)Q3 2021Q3 2022Net Interest Income$10.4$13.4Provision for (Reversal of) Credit Losses(0.0)(0.1) Noninterest Income116.1100.8 Noninterest Expense109.296.8Income Before Taxes$17.4$17.5 Key Highlights($ in millions)Q3 2021Q3 2022Compensation/Net Revenue (%)65.1%61.5%Pre-tax Margin %13.8%15.3%FDIC Insured Balances at PCB (period end)$794$664Other FDIC Insured Balances (period end)$1,594$1,377Public Finance Offerings$14,838$15,561TBA Lock Volume$1,775$1,301 ($ in millions)Q3 2021Q3 2022Public Finance Services$37.6$25.6Fixed Income Services15.416.8Wealth ManagementRetail28.228.0Clearing Services7.69.7Securities Lending2.11.5Structured Finance35.429.3Other0.33.2 Net Revenues$126.6$114.2 |
19Non-GAAP to GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures •Hilltop ConsolidatedTangible Common Equity, is a non-GAAP financial measure. Tangible common equity is defined as our total stockholders’ equity, excluding preferred stock, reduced by goodwill and other intangible assets. This is a measure used by management, investors andanalysts to assess use of equity. Tangible book value per share, or TBVPS, is a non-GAAP financial measure. TBVPS represents Hilltop’s tangible common equity at period-end divided by common shares outstanding at period-end. This is a measure used by management, investors and analysts to assess use of equity. Reconciliation of Tangible Common Equity and Tangible Book Value Per Share ($ '000, except per share amounts)9/30/202012/31/20203/31/20216/30/20219/30/202112/31/20213/31/20226/30/20229/30/2022Total Stockholders' Equity$2,411,372$2,323,939$2,419,185$2,470,281$2,476,371$2,522,668$2,463,933$2,029,577$2,031,811Less:Goodwill267,447267,447267,447267,447267,447267,447267,447267,447267,447Other intangible assets, net21,81420,36419,03517,70516,45515,28414,23313,18212,209Tangible Common Equity$2,122,111$2,036,128$2,132,703$2,185,129$2,192,469$2,239,937$2,182,253$1,748,948$1,752,155Shares outstanding as of period end90,23882,18582,26181,15378,95978,96579,43964,57664,591 Book Value Per Share (Common Stockholder's Equity / Shares Outstanding)$26.72$28.28$29.41$30.44$31.36$31.95$31.02$31.43$31.46 Tangible Book Value Per Share (Tangible Common Equity / Shares Outstanding)$23.52$24.77$25.93$26.93$27.77$28.37$27.47$27.08$27.13 |