Hilltop Holdings Inc. (HTH) 8-K Earnings Release, Other Events

DALLAS — (BUSINESS WIRE) October 25, 2018 — Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the third quarter of 2018. Hilltop produced income of $35.8 million, or $0.38 per diluted share, for the third quarter of 2018, compared to $30.2 million, or $0.31 per diluted share, for the third quarter of 2017.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.07 per common share, payable on November 30, 2018, to all common stockholders of record as of the close of business on November 15, 2018. Additionally, pursuant to the stock repurchase program authorized by the Hilltop Board of Directors, Hilltop has paid $38.8 million to repurchase 1,702,696 shares at an average price of $22.81 during the first nine months of 2018. These shares were returned to the pool of authorized but unissued shares of common stock. Aggregate repurchases of $61.2 million remain available under this program which expires in January 2019. Amounts repurchased are inclusive of repurchases to offset dilution related to grants of stock-based compensation.

On August 1, 2018, Hilltop completed its $85 million, all-cash acquisition of The Bank of River Oaks (“BORO”). Based on preliminary purchase date valuations, the fair value of the assets acquired was $434.8 million (excluding goodwill), including $326.6 million in loans (net of a $17.3 million fair value adjustment), while the fair value of liabilities assumed was $389.4 million, consisting primarily of $376.4 million in deposits. The operations of BORO were included in Hilltop operating results beginning August 1, 2018. The estimated fair value of the core deposit intangible asset acquired as of August 1, 2018 was $10.0 million (approximately 3.1% of core deposits) and resulting preliminary goodwill was $39.6 million. In connection with the acquisition, BORO was merged into PlainsCapital Bank, and all customer accounts were converted to the PlainsCapital Bank platform in October 2018. Transaction expenses related to the BORO acquisition were $6.6 million during the third quarter of 2018.

Jeremy Ford, Co-CEO of Hilltop, said, “Hilltop’s results this quarter reflect our focus on execution, as we closed and successfully integrated The Bank of River Oaks and delivered profitability in all of our operating segments. We continue to make progress with our strategic objectives to enhance our financial services platform through investments in technology solutions and to streamline our operations through the adoption of shared services. During 2018, Hilltop has deployed $85 million of capital through the acquisition of The Bank of River Oaks and returned $59 million of capital through dividends and share repurchases.”

Alan White, Co-CEO of Hilltop, added, “Serving our clients and expanding relationships across all of our businesses remains the primary focus. PlainsCapital Bank has continued to demonstrate strong credit quality and prudent loan growth. The mortgage business remains challenging given competitive pressures on both pricing and volume. PrimeLending, through our purchase mortgage-focused strategy, remained profitable in the quarter and took steps to optimize its cost structure. HilltopSecurities delivered improved profitability from its Structured Finance and Clearing businesses. National Lloyds’ performance for the quarter was substantially improved versus 2017 from lower storm activity within our footprint.”

Third Quarter 2018 Highlights for Hilltop:

Hilltop invested a total of $24.6 million in land and a mixed-use real estate project that is currently under construction, which is expected to serve as the headquarters for both Hilltop and PlainsCapital Bank starting in the fourth quarter of 2019;

Hilltop’s annualized return on average assets and return on average equity for the third quarter of 2018 were 1.07% and 7.41%, respectively, compared to 0.90% and 6.32%, respectively, for the third quarter of 2017;

Hilltop’s book value per common share increased to $20.51 at September 30, 2018, compared to $20.21 at June 30, 2018;

Hilltop’s total assets were $13.8 billion at September 30, 2018, compared to $13.7 billion at June 30, 2018;

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Non-covered loans1 held for investment, net of allowance for loan losses, increased by 7.3% to $6.1 billion and covered loans2, net of allowance for loan losses, decreased by 10.2% to $142.7 million at September 30, 2018 compared to June 30, 2018;

Non-covered non-performing loans decreased to $36.8 million, or 0.44% of total non-covered loans, at September 30, 2018, compared to $42.0 million, or 0.50% of total non-covered loans, at June 30, 2018;

Loans held for sale decreased by 21.9% from June 30, 2018 to $1.5 billion at September 30, 2018;

Total deposits were $8.3 billion at September 30, 2018, compared to $7.8 billion at June 30, 2018;

Hilltop maintained strong capital levels with a Tier 1 Leverage Ratio3 of 12.40% and a Common Equity Tier 1 Capital Ratio of 16.95% at September 30, 2018;

Hilltop’s net interest margin4 increased to 3.48% for the third quarter of 2018, compared to 3.46% in the second quarter of 2018;

The provision (recovery) for loan losses was ($0.4) million during the third quarter of 2018, compared to $0.3 million in the second quarter of 2018;

For the third quarter of 2018, noninterest income was $269.7 million, compared to $298.5 million in the third quarter of 2017, a 9.6% decrease;

For the third quarter of 2018, noninterest expense was $335.7 million, compared to $353.8 million in the third quarter of 2017, a 5.1% decrease; and

Hilltop’s effective tax rate decreased to 17.0% during the third quarter of 2018, compared to 37.2% during the third quarter of 2017, and included significant items related to the following:

Reduction of the corporate tax rate in 2018 from 35% to 21% pursuant to the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”); and

Reduction in the third quarter of 2018 due to tax planning strategies and a tax benefit recognized on the deductible portion of settlement of litigation.

1 “Non-covered loans” exclude broker-dealer margin loans.

2 “Covered loans” refer to loans acquired in the FNB Transaction that were subject to loss-share agreements with the FDIC as of September 30, 2018.

3 Based on the end of period Tier 1 capital divided by total average assets during the quarter, excluding goodwill and intangible assets.

4 Net interest margin is defined as net interest income divided by average interest-earning assets.

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Consolidated Financial and Other Information


Consolidated Balance Sheets	September 30,		June 30,		March 31,		December 31,		September 30,
(in 000's)	2018		2018		2018		2017		2017
Cash and due from banks	$	405,682	$	353,432	$	470,127	$	486,977	$	354,569
Federal funds sold		468		403		400		405		400
Assets segregated for regulatory purposes		220,115		128,417		198,170		186,578		207,336
Securities purchased under agreements to resell		164,656		229,172		244,978		186,537		134,654
Securities:
Trading, at fair value		660,314		634,197		756,151		730,685		676,411
Available for sale, at fair value		874,496		811,218		806,583		744,319		744,559
Held to maturity, at amortized cost		348,163		353,192		356,452		355,849		368,031
Equity, at fair value		21,555		21,218		20,876		21,241		20,983
		1,904,528		1,819,825		1,940,062		1,852,094		1,809,984
Loans held for sale		1,524,980		1,953,562		1,409,634		1,715,357		1,939,321
Non-covered loans, net of unearned income		6,796,278		6,384,660		6,216,809		6,273,669		6,148,813
Allowance for non-covered loan losses		(58,861)		(59,996)		(60,371)		(60,957)		(58,779)
Non-covered loans, net		6,737,417		6,324,664		6,156,438		6,212,712		6,090,034

Covered loans, net of allowance for covered loan losses		142,737		158,996		167,781		179,400		188,269
Broker-dealer and clearing organization receivables		1,491,507		1,614,951		1,660,720		1,464,378		1,672,123
Premises and equipment, net		236,172		172,911		173,637		177,577		176,281
FDIC indemnification asset		22,831		23,525		25,458		29,340		33,143
Covered other real estate owned		29,856		34,895		35,777		36,744		40,343
Other assets		551,758		589,897		576,567		549,447		596,095
Goodwill		291,435		251,808		251,808		251,808		251,808
Other intangible assets, net		40,394		32,716		34,569		36,432		38,440
Total assets	$	13,764,536	$	13,689,174	$	13,346,126	$	13,365,786	$	13,532,800

Deposits:
Non interest-bearing	$	2,525,677	$	2,468,332	$	2,565,825	$	2,411,849	$	2,279,633
Interest-bearing		5,764,556		5,345,290		5,393,897		5,566,270		5,383,814
Total deposits		8,290,233		7,813,622		7,959,722		7,978,119		7,663,447
Broker-dealer and clearing organization payables		1,396,401		1,409,904		1,504,172		1,287,563		1,517,698
Short-term borrowings		1,216,649		1,610,735		1,064,325		1,206,424		1,477,201
Securities sold, not yet purchased, at fair value		179,582		251,581		255,551		232,821		173,509
Notes payable		220,192		227,736		202,700		208,809		300,196
Junior subordinated debentures		67,012		67,012		67,012		67,012		67,012
Other liabilities		430,309		392,171		367,188		470,231		424,381
Total liabilities		11,800,378		11,772,761		11,420,670		11,450,979		11,623,444

Common stock		946		946		960		960		959
Additional paid-in capital		1,504,467		1,502,105		1,526,867		1,526,369		1,525,169
Accumulated other comprehensive income (loss)		(14,722)		(11,846)		(9,698)		(394)		2,585
Retained earnings		448,923		419,683		404,260		384,545		376,873
Deferred compensation employee stock trust, net		860		857		857		848		840
Employee stock trust		(252)		(252)		(254)		(247)		(241)
Total Hilltop stockholders' equity		1,940,222		1,911,493		1,922,992		1,912,081		1,906,185
Noncontrolling interests		23,936		4,920		2,464		2,726		3,171
Total stockholders' equity		1,964,158		1,916,413		1,925,456		1,914,807		1,909,356
Total liabilities & stockholders' equity	$	13,764,536	$	13,689,174	$	13,346,126	$	13,365,786	$	13,532,800

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	Three Months Ended
Consolidated Income Statements	September 30,		June 30,		March 31,		December 31,		September 30,
(in 000's, except per share data)	2018		2018		2018		2017		2017
Interest income:
Loans, including fees	$	113,535	$	103,924	$	99,944	$	105,658	$	102,546
Securities borrowed		16,346		17,486		16,300		11,994		11,404
Securities:
Taxable		11,994		12,516		10,953		10,824		10,214
Tax-exempt		1,717		1,697		1,772		1,717		1,471
Other		4,734		4,417		4,391		3,472		3,309
Total interest income		148,326		140,040		133,360		133,665		128,944

Interest expense:
Deposits		12,353		10,136		8,675		7,700		6,841
Securities loaned		13,984		15,075		13,739		9,581		8,935
Short-term borrowings		7,831		6,466		4,043		4,118		4,567
Notes payable		2,702		2,437		2,497		2,611		2,680
Junior subordinated debentures		955		918		822		787		774
Other		160		160		164		176		167
Total interest expense		37,985		35,192		29,940		24,973		23,964

Net interest income		110,341		104,848		103,420		108,692		104,980
Provision (recovery) for loan losses		(371)		340		(1,807)		5,453		1,260
Net interest income after provision (recovery) for loan losses		110,712		104,508		105,227		103,239		103,720

Noninterest income:
Net gains from sale of loans and other mortgage production income		116,243		132,478		105,767		122,132		138,498
Mortgage loan origination fees		27,004		29,318		20,626		23,156		25,256
Securities commissions and fees		36,968		38,320		38,717		40,868		38,735
Investment and securities advisory fees and commissions		23,487		21,965		18,354		36,561		25,620
Net insurance premiums earned		34,185		34,105		34,315		35,645		34,493
Other		31,810		23,248		17,364		32,094		35,875
Total noninterest income		269,697		279,434		235,143		290,456		298,477

Noninterest expense:
Employees' compensation and benefits		205,575		200,632		182,600		205,642		209,747
Occupancy and equipment, net		29,015		27,893		27,830		29,658		29,073
Professional services		27,984		26,020		24,704		24,220		25,560
Loss and loss adjustment expenses		18,712		24,409		15,532		8,583		31,234
Other		54,425		59,563		57,536		60,567		58,228
Total noninterest expense		335,711		338,517		308,202		328,670		353,842

Income before income taxes		44,698		45,425		32,168		65,025		48,355
Income tax expense		7,600		11,034		7,488		51,350		18,003
Net income		37,098		34,391		24,680		13,675		30,352
Less: Net income attributable to noncontrolling interest		1,293		1,311		239		247		146
Income attributable to Hilltop	$	35,805	$	33,080	$	24,441	$	13,428	$	30,206

Earnings per common share:
Basic	$	0.38	$	0.35	$	0.25	$	0.14	$	0.31
Diluted	$	0.38	$	0.35	$	0.25	$	0.14	$	0.31

Cash dividends declared per common share	$	0.07	$	0.07	$	0.07	$	0.06	$	0.06

Weighted average shares outstanding:
Basic		94,554		95,270		95,985		95,903		96,096
Diluted		94,610		95,358		96,146		96,080		96,306


	Three Months Ended September 30, 2018
Segment Results					Mortgage						All Other and		Hilltop
(in 000's)	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	94,921	$	12,432	$	363	$	733	$	(3,275)	$	5,167	$	110,341
Provision for loan losses		—		(371)		—		—		—		—		(371)
Noninterest income		11,365		82,834		144,400		36,724		523		(6,149)		269,697
Noninterest expense		67,714		85,713		140,006		33,807		8,656		(185)		335,711
Income (loss) before income taxes	$	38,572	$	9,924	$	4,757	$	3,650	$	(11,408)	$	(797)	$	44,698

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	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,
Selected Financial Data	2018		2018		2018		2017		2017

Hilltop Consolidated:
Return on average stockholders' equity (1)		7.41%		6.95%		5.19%		2.78%		6.32%
Return on average assets (1)		1.07%		1.03%		0.77%		0.41%		0.90%
Net interest margin (2) (3)		3.48%		3.46%		3.52%		3.57%		3.44%
Net interest margin (taxable equivalent) (3) (4):
As reported		3.49%		3.47%		3.53%		3.59%		3.46%
Impact of purchase accounting		28 bps		29 bps		36 bps		43 bps		37 bps
Book value per common share ($)		20.51		20.21		20.02		19.92		19.88
Shares outstanding, end of period (000's)		94,594		94,571		96,048		95,982		95,904
Dividend payout ratio (1) (5)		18.48%		20.16%		27.49%		42.86%		19.09%

Banking Segment:
Net interest margin (2)		4.13%		4.11%		4.15%		4.23%		4.03%
Net interest margin (taxable equivalent) (4):
As reported		4.14%		4.12%		4.16%		4.24%		4.05%
Impact of purchase accounting		39 bps		42 bps		51 bps		60 bps		51 bps
Accretion of discount on loans ($000's)		8,147		8,343		9,867		12,642		10,541
Non-covered net charge-offs (recoveries) ($000's)		1,442		1,510		(1,312)		2,646		908
Return on average assets (1)		1.19%		1.09%		1.31%		-0.08%		0.94%
Fee income ratio		10.69%		10.79%		10.51%		10.22%		11.33%
Efficiency ratio		63.71%		66.47%		61.32%		60.18%		62.29%
Employees' compensation and benefits ($000's)		36,878		32,442		30,811		31,159

Hilltop Holdings Inc. (HTH) SEC Filing 8-K Material Event for the period ending Thursday, October 25, 2018

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