Last10K.com

Hilltop Holdings Inc. (HTH) SEC Filing 8-K Material Event for the period ending Thursday, July 22, 2021

Hilltop Holdings Inc.

CIK: 1265131 Ticker: HTH

Exhibit 99.1

Investor Relations Contact:

Erik Yohe

214-525-4634

eyohe@hilltop-holdings.com

Hilltop Holdings Inc. Announces Financial Results for Second Quarter 2021

DALLAS — (BUSINESS WIRE) July 22, 2021 — Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the second quarter of 2021. Hilltop produced income from continuing operations to common stockholders of $99.1 million, or $1.21 per diluted share, for the second quarter of 2021, compared to $97.7 million, or $1.08 per diluted share, for the second quarter of 2020. Hilltop’s financial results from continuing operations for the second quarter of 2021 benefited from the significant improvement in the macroeconomic outlook and resulting impact on loan expected loss rates within the banking segment. However, Hilltop also realized a decrease in year-over-year mortgage origination segment net gains from sales of loans and other mortgage production income.

Including income from discontinued operations related to the former insurance business, income applicable to common stockholders was $99.1 million, or $1.21 per diluted share, for the second quarter of 2021, compared to $128.5 million, or $1.42 per diluted share, for the second quarter of 2020.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.12 per common share, payable on August 31, 2021, to all common stockholders of record as of the close of business on August 13, 2021. Additionally, during the second quarter of 2021, Hilltop paid $44.5 million to repurchase an aggregate of 1,240,843 shares of its common stock at an average price of $35.85 per share pursuant to the 2021 stock repurchase program. These shares were returned to the pool of authorized but unissued shares of common stock.

Furthermore, in July 2021, the Hilltop Board of Directors authorized, subject to regulatory review, an increase to the aggregate amount of common stock that Hilltop may repurchase under the aforementioned stock repurchase program to $150.0 million, an increase of $75.0 million. As a result of share repurchases during 2021, Hilltop has approximately $100 million of available share repurchase capacity through expiration of the stock repurchase program in January 2022.

The COVID-19 pandemic has adversely impacted financial markets and overall economic conditions, and is expected to continue to have implications on our business and operations. The extent of the impact of the pandemic on our operational and financial performance for the remainder of 2021 is currently uncertain and will depend on certain developments outside of our control, including, among others, the ongoing distribution and effectiveness of vaccines, government stimulus, the ultimate impact of the pandemic on our customers and clients, and additional, or extended, federal, state and local government orders and regulations that might be imposed in response to the pandemic.

Jeremy B. Ford, President and CEO of Hilltop, said, “I am very pleased with the results from the second quarter and first half of 2021. Hilltop’s performance this year highlights the versatility of our franchise and the value of our diversified operating model. During the second quarter, credit trends at the bank continued to improve and we believe we are well situated for growth with robust liquidity and capital levels. The mortgage team has proven nimble across the country as the market has evolved over the past year and a half, and we also believe we are well positioned to grow our purchase-focused customer base. Although HilltopSecurities realized mixed results primarily due to market volatility, the broker-dealer remains healthy with a diverse revenue base. In addition to our strong operating performance, Hilltop distributed approximately $10 million of dividends and repurchased approximately $45 million of shares in the open market.”

Second Quarter 2021 Highlights for Hilltop:

The reversal of credit losses was $28.7 million during the second quarter of 2021, compared to a reversal of credit losses of $5.1 million in the first quarter of 2021;
oThe significant reversal of credit losses during the second quarter of 2021 primarily reflected improvements in the macroeconomic forecast assumptions and positive risk rating grade migration, including a high concentration of credits within the restaurant and commercial real estate industry sectors;

Graphic


For the second quarter of 2021, net gains from sale of loans and other mortgage production income and mortgage loan origination fees within our mortgage origination segment was $241.8 million, compared to $340.7 million in the second quarter of 2020, a 29.0% decrease;
oMortgage loan origination production volume was $5.9 billion during the second quarter of 2021, compared to $6.1 billion in the second quarter of 2020;
oNet gains from mortgage loans sold to third parties declined to 376 basis points during the second quarter of 2021, compared to 398 basis points in the first quarter of 2021.
Hilltop’s consolidated annualized return on average assets and return on average equity for the second quarter of 2021 were 2.29% and 16.42%, respectively, compared to 3.30% and 23.32%, respectively, for the second quarter of 2020;
Hilltop’s book value per common share increased to $30.44 at June 30, 2021, compared to $29.41 at March 31, 2021;
Hilltop’s total assets were $17.7 billion at both June 30, 2021 and March 31, 2021;
Loans1, net of allowance for credit losses, decreased to $6.9 billion at June 30, 2021 compared to $7.1 billion at March 31, 2021;
oIncludes supporting our impacted banking clients through funding of over 4,100 loans through both rounds of the Paycheck Protection Program, or PPP, with a remaining balance of approximately $261 million as of June 30, 2021, compared to approximately $492 million as of March 31, 2021;
oThrough July 16, 2021, the Small Business Administration, or SBA, had approved approximately 2,600 initial round PPP forgiveness applications from the Bank totaling approximately $643 million, with initial round PPP loans of approximately $9 million pending SBA review and approval;
oSubmissions to SBA of second round PPP forgiveness applications by the Bank in early stages.
Non-performing loans were $69.0 million, or 0.66% of total loans, at June 30, 2021, compared to $79.9 million, or 0.77% of total loans, at March 31, 2021;
We further supported our impacted banking clients during 2020 through the approval of COVID-19 related loan modifications of approximately $1.0 billion, and continued such support during 2021, resulting in a portfolio of active deferrals that have not reached the end of their deferral period of approximately $76 million as of June 30, 2021, compared to approximately $130 million in active deferment as of March 31, 2021;
oWhile the majority of the portfolio of COVID-19 related loan modifications no longer require deferral, such loans may continue to represent elevated risk; therefore, monitoring of these loans continues;
oThe extent of these loans progressing into non-performing loans during future periods is uncertain.
Loans held for sale increased by 13.6% from March 31, 2021 to $2.9 billion at June 30, 2021;
Total deposits were $11.7 billion at both June 30, 2021 and March 31, 2021;
Hilltop maintained strong capital levels2 with a Tier 1 Leverage Ratio3 of 12.87% and a Common Equity Tier 1 Capital Ratio of 20.22% at June 30, 2021;
Hilltop’s consolidated net interest margin4 decreased to 2.62% for the second quarter of 2021, compared to 2.69% in the first quarter of 2021;
oIncludes previously deferred interest income of $5.4 million during the second quarter of 2021 related to PPP loan-related origination fees.
For the second quarter of 2021, noninterest income from continuing operations was $339.9 million, compared to $468.1 million in the second quarter of 2020, a 27.4% decrease;
oIncludes $6.5 million of pre-tax gains associated with observable transactions related to two merchant bank equity investments.
For the second quarter of 2021, noninterest expense from continuing operations was $343.4 million, compared to $370.2 million in the second quarter of 2020, a 7.3% decrease; and
Hilltop’s effective tax rate from continuing operations was 23.5% during the second quarter of 2021, compared to 23.3% during the same period in 2020.

Discontinued Operations

On June 30, 2020, Hilltop completed the sale of National Lloyds Corporation, or NLC, which comprised the operations of its former insurance segment, for cash proceeds of $154.1 million. During 2020, Hilltop recognized an aggregate gain associated with this transaction of $36.8 million, net of transaction costs. Accordingly, insurance segment results and its assets and liabilities have been presented as discontinued operations. The resulting book gain from this sale transaction was not recognized for tax purposes pursuant to the rules promulgated under the Internal Revenue Code.

Graphic



Note: “Consolidated” refers to our consolidated financial position and consolidated results of operations, including discontinued operations and assets and liabilities of discontinued operations.

1  “Loans” reflect loans held for investment excluding broker-dealer margin loans, net of allowance for credit losses, of $628.3 million and $519.9 million at June 30, 2021 and March 31, 2021, respectively.

2  Capital ratios reflect Hilltop’s decision to elect the transition option as issued by the federal banking regulatory agencies in March 2020 that permits banking institutions to mitigate the estimated cumulative regulatory capital effects from CECL over a five-year transitionary period.

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.

Consolidated Financial and Other Information

Consolidated Balance Sheets

June 30,

March 31,

December 31,

September 30,

June 30,

(in 000's)

    

2021

    

2021

    

2020

    

2020

    

2020

Cash and due from banks

$

1,372,818

$

1,564,489

$

1,062,560

$

1,277,865

$

1,655,492

Federal funds sold

387

396

386

420

385

Assets segregated for regulatory purposes

207,284

273,393

290,357

221,621

194,626

Securities purchased under agreements to resell

202,638

106,342

80,319

90,103

161,457

Securities:

 

Trading, at fair value

682,483

528,712

694,255

667,751

648,037

Available for sale, at fair value, net

1,817,807

1,715,406

1,462,205

1,310,240

1,091,348

Held to maturity, at amortized cost, net

288,776

300,088

311,944

323,299

343,198

Equity, at fair value

193

189

140

117

122

2,789,259

2,544,395

2,468,544

2,301,407

2,082,705

Loans held for sale

 

2,885,458

2,538,986

2,788,386

2,547,975

2,592,307

Loans held for investment, net of unearned income

7,645,227

7,810,657

7,693,141

7,945,560

7,849,904

Allowance for credit losses

 

(115,269)

(144,499)

(149,044)

(155,214)

(156,383)

Loans held for investment, net

7,529,958

7,666,158

7,544,097

7,790,346

7,693,521

Broker-dealer and clearing organization receivables

1,403,447

1,596,817

1,404,727

1,363,478

1,222,627

Premises and equipment, net

 

212,402

213,304

211,595

208,078

210,975

Operating lease right-of-use assets

 

115,698

101,055

105,757

109,354

119,954

Mortgage servicing assets

124,497

142,125

143,742

127,712

81,264

Other assets

535,536

648,895

555,983

607,932

627,982

Goodwill

267,447

267,447

267,447

267,447

267,447

Other intangible assets, net

17,705

19,035

20,364

21,814

23,374

Total assets

$

17,664,534

$

17,682,837

$

16,944,264

$

16,935,552

$

16,934,116

Deposits:

Noninterest-bearing

$

4,231,082

$

4,031,181

$

3,612,384

$

3,557,603

$

3,467,500

Interest-bearing

 

7,502,703

7,701,598

7,629,935

7,704,312

8,182,098

Total deposits

11,733,785

11,732,779

11,242,319

11,261,915

11,649,598

Broker-dealer and clearing organization payables

 

1,439,620

1,546,227

1,368,373

1,310,835

1,158,628

Short-term borrowings

915,919

676,652

695,798

780,109

720,164

Securities sold, not yet purchased, at fair value

132,950

97,055

79,789

56,023

55,340

Notes payable

396,653

401,713

381,987

396,006

450,158

Operating lease liabilities

134,019

120,339

125,450

122,402

131,411

Junior subordinated debentures

67,012

67,012

67,012

67,012

67,012

Other liabilities

348,200

595,045

632,889

502,517

409,672

Total liabilities

15,168,158

15,236,822

14,593,617

14,496,819

14,641,983

Common stock

812

823

822

902

902

Additional paid-in capital

1,302,439

1,319,518

1,317,929

1,443,588

1,439,686

Accumulated other comprehensive income

7,093

3,486

17,763

23,790

23,813

Retained earnings

1,159,304

1,094,727

986,792

942,461

797,331

Deferred compensation employee stock trust, net

754

752

771

774

778

Employee stock trust

(121)

(121)

(138)

(143)

(150)

Total Hilltop stockholders' equity

2,470,281

2,419,185

2,323,939

2,411,372

2,262,360

Noncontrolling interests

26,095

26,830

26,708

27,361

29,773

Total stockholders' equity

2,496,376

2,446,015

2,350,647

2,438,733

2,292,133

Total liabilities & stockholders' equity

$

17,664,534

$

17,682,837

$

16,944,264

$

16,935,552

$

16,934,116

Graphic


Three Months Ended

Consolidated Income Statements

June 30,

March 31,

December 31,

September 30,

June 30,

(in 000's, except per share data)

    

2021

    

2021

    

2020

    

2020

    

2020

    

Interest income:

Loans, including fees

$

104,162

$

104,277

$

109,328

$

104,955

$

107,860

Securities borrowed

15,586

28,972

14,445

10,705

12,883

Securities:

Taxable

11,125

10,251

9,845

11,035

11,698

Tax-exempt

2,338

2,102

1,862

1,687

1,539

Other

1,607

1,321

1,381

1,446

951

Total interest income

134,818

146,923

136,861

129,828

134,931

Interest expense:

 

Deposits

6,176

7,741

9,269

10,700

11,947

Securities loaned

12,345

25,486

12,014

8,729

10,796

Short-term borrowings

2,374

2,013

2,154

2,346

2,367

Notes payable

5,253

4,797

4,807

4,904

3,768

Junior subordinated debentures

577

562

609

608

705

Other

177

642

636

641

790

Total interest expense

26,902

41,241

29,489

27,928

30,373

Net interest income

107,916

105,682

107,372

101,900

104,558

Provision for (reversal of) credit losses

(28,720)

(5,109)

(3,482)

(602)

66,026

Net interest income after provision for (reversal of) credit losses

136,636

110,791

110,854

102,502

38,532

Noninterest income:

 

Net gains from sale of loans and other mortgage production income

199,625

267,080

247,360

307,896

295,317

Mortgage loan origination fees

42,146

43,155

50,193

47,681

45,341

Securities commissions and fees

38,300

38,314

35,921

32,496

34,234

Investment and securities advisory fees and commissions

32,268

27,695

42,161

36,866

29,120

Other

27,560

41,341

72,296

77,772

64,113

Total noninterest income

339,899

417,585

447,931

502,711

468,125

Noninterest expense:

 

Employees' compensation and benefits

248,486

270,353

291,489

294,907

276,893

Occupancy and equipment, net

25,004

24,429

27,596

26,124

26,174

Professional services

16,239

13,585

21,927

17,522

15,737

Other

53,639

58,295

61,336

60,792

51,405

Total noninterest expense

343,368

366,662

402,348

399,345

370,209

Income from continuing operations before income taxes

133,167

161,714

156,437

205,868

136,448

Income tax expense

 

31,234

37,770

39,295

46,820

31,808

Income from continuing operations

101,933

123,944

117,142

159,048

104,640

Income from discontinued operations, net of income taxes

3,734

736

30,775

Net income

101,933

123,944

120,876

159,784

135,415

Less: Net income attributable to noncontrolling interest

 

2,873

3,599

4,431

6,505

6,939

Income attributable to Hilltop

$

99,060

$

120,345

$

116,445

$

153,279

$

128,476

Earnings per common share:

Basic:

Earnings from continuing operations

$

1.21

$

1.46

$

1.31

$

1.69

$

1.08

Earnings from discontinued operations

0.04

0.01

0.34

$

1.21

$

1.46

$

1.35

$

1.70

$

1.42

Diluted:

Earnings from continuing operations

$

1.21

$

1.46

$

1.30

$

1.69

$

1.08

Earnings from discontinued operations

0.05

0.01

0.34

$

1.21

$

1.46

$

1.35

$

1.70

$

1.42

Cash dividends declared per common share

$

0.12

$

0.12

$

0.09

$

0.09

$

0.09

Weighted average shares outstanding:

Basic

81,663

82,169

86,269

90,200

90,164

Diluted

82,199

82,657

86,420

90,200

90,164

Three Months Ended June 30, 2021

Segment Results

Mortgage

    

    

All Other and

    

Continuing

(in 000's)

    

Banking

    

Broker-Dealer

    

Origination

    

Corporate

    

Eliminations

    

Operations

Net interest income (expense)

$

105,468

$

10,682

$

(5,953)

$

(4,687)

$

2,406

$

107,916

Provision for (reversal of) credit losses

 

(28,775)

 

55

 

 

 

 

(28,720)

Noninterest income

 

10,242

 

83,463

 

241,965

 

6,877

 

(2,648)

 

339,899

Noninterest expense

 

57,514

 

87,234

 

186,963

 

12,072

 

(415)

 

343,368

Income (loss) from continuing operations before taxes

$

86,971

$

6,856

$

49,049

$

(9,882)

$

173

$

133,167

Six Months Ended June 30, 2021

Segment Results

Mortgage

    

    

All Other and

    

Continuing

(in 000's)

    

Banking

    

Broker-Dealer

    

Origination

    

Corporate

    

Eliminations

    

Operations

Net interest income (expense)

$

209,352

$

21,196

$

(13,051)

$

(9,379)

$

5,480

$

213,598

Provision for (reversal of) credit losses

 

(33,950)

 

121

 

(33,829)

Noninterest income

 

21,566

 

182,086

552,409

7,383

(5,960)

 

757,484

Noninterest expense

 

113,302

 

178,638

397,297

21,660

(867)

 

710,030

Income (loss) from continuing operations before taxes

$

151,566

$

24,523

$

142,061

$

(23,656)

$

387

$

294,881

Graphic


Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

Selected Financial Data

2021

    

2021

    

2020

    

2020

    

2020

Hilltop Consolidated (1):

 

Return on average stockholders' equity

16.42%

20.58%

20.56%

25.94%

23.32%

Return on average assets

2.29%

2.90%

2.83%

3.71%

3.30%

Net interest margin (2)

2.62%

2.69%

2.71%

2.56%

2.80%

Net interest margin (taxable equivalent) (3):

As reported

2.63%

 

2.69%

2.72%

2.57%

2.81%

Impact of purchase accounting

 

16 bps

13 bps

15 bps

10 bps

10 bps

Without purchase accounting impact

2.47%

2.56%

2.57%

2.47%

2.71%

Book value per common share ($)

30.44

29.41

28.28

26.72

25.08

Shares outstanding, end of period (000's)

81,153

82,261

82,185

90,238

90,222

Dividend payout ratio (4)

9.92%

 

8.19%

6.67%

5.30%

6.32%

Banking Segment:

Net interest margin (2)

3.19%

3.30%

3.37%

3.03%

3.11%

Net interest margin (taxable equivalent) (3):

As reported

3.20%

3.31%

3.38%

3.03%

3.12%

Impact of purchase accounting

20 bps

17 bps

20 bps

13 bps

12 bps

Accretion of discount on loans ($000's)

6,001

4,851

5,629

3,346

3,217

Net recoveries (charge-offs) ($000's)

(510)

564

(2,688)

(567)

(16,382)

Return on average assets

1.91%

1.48%

1.37%

1.14%

(0.42)%

Fee income ratio

8.9%

9.8%

10.2%

9.2%

10.2%

Efficiency ratio

49.7%

48.4%

53.0%

52.7%

54.1%

Employees' compensation and benefits ($000's)

33,369

30,992

34,007

29,808

31,583

Broker-Dealer Segment:

Net revenue ($000's) (5)

94,145

109,137

150,070

149,190

132,624

Employees' compensation and benefits ($000's) (6)

62,289

66,157

87,622

88,211

79,847

Variable compensation expense ($000's)

34,409

37,412

60,295

60,774

52,372

Compensation as a % of net revenue (6)

66.2%

60.6%

58.4%

59.1%

60.2%

Pre-tax margin (7)

7.3%

16.2%

22.8%

23.7%

21.0%

Mortgage Origination Segment:

Mortgage loan originations - volume ($000's):

Home purchases

4,018,922

2,902,710

3,683,564

4,183,560

3,204,573

Refinancings

1,881,121

3,281,395

3,114,630

2,266,793

2,894,486

Total mortgage loan originations - volume

5,900,043

6,184,105

6,798,194

6,450,353

6,099,059

Mortgage loan sales - volume ($000's)

5,524,226

6,350,837

6,571,234

6,521,773

5,934,914

Net gains from mortgage loan sales (basis points):

Loans sold to third parties

376

398

451

441

369

Impact of loans retained by banking segment

(12)

(10)

(3)

(1)

(1)

As reported

364

388

448

440

368

Mortgage servicing rights asset ($000's) (8)

124,497

142,125

143,742

127,712

81,263

Employees' compensation and benefits ($000's)

145,401

166,248

163,822

161,738

160,824

Variable compensation expense ($000's)

97,081

115,486

116,736

116,275

113,826


(1)Ratios and financial data presented on a consolidated basis. For all 2020 periods presented, information includes discontinued operations and as of June 30, 2020 those assets and liabilities of discontinued operations.
(2)Net interest margin is defined as net interest income divided by average interest-earning assets.
(3)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 $0.4 million, $0.2 million, $0.3 million, $0.3 million, and $0.3 million, respectively, for the periods presented and for the banking segment were $0.2 million, $0.2 million, $0.2 million, $0.2 million, and $0.2 million, respectively, for the periods presented.
(4)Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(5)Net revenue is defined as the sum of total broker-dealer net interest income and total broker-dealer noninterest income.
(6)Noted balances and ratios during all prior periods reflect certain reclassifications to conform to current period presentation.
(7)Pre-tax margin is defined as income before income taxes divided by net revenue.
(8)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.

June 30,

March 31,

December 31,

September 30,

June 30,

Capital Ratios

    

2021

    

2021

    

2020

    

2020

    

2020

Tier 1 capital (to average assets):

PlainsCapital

 

10.22%

 

10.50%

10.44%

10.19%

10.37%

Hilltop

12.87%

 

13.01%

12.64%

13.03%

12.60%

Common equity Tier 1 capital (to risk-weighted assets):

PlainsCapital

15.00%

 

14.74%

14.40%

14.64%

14.03%

Hilltop

 

20.22%

 

19.63%

18.97%

19.85%

18.46%

Tier 1 capital (to risk-weighted assets):

 

 

PlainsCapital

15.00%

 

14.74%

14.40%

14.64%

14.03%

Hilltop

 

20.82%

 

20.22%

19.57%

20.46%

19.06%

Total capital (to risk-weighted assets):

PlainsCapital

 

15.95%

 

15.64%

15.27%

15.49%

14.88%

Hilltop

23.48%

 

22.96%

22.34%

23.22%

21.82%

Graphic


June 30,

March 31,

December 31,

September 30,

June 30,

Non-Performing Assets Portfolio Data

    

2021

    

2021

    

2020

    

2020

  

2020

Loans accounted for on a non-accrual basis ($000's) (1):

 

Commercial real estate

7,211

10,668

11,133

14,079

13,743

Commercial and industrial

33,033

36,144

34,049

38,708

32,259

Construction and land development

474

501

507

528

1,404

1-4 family residential

27,100

30,937

32,263

28,707

20,552

Consumer

26

26

28

53

308

Broker-dealer

67,844

78,276

77,980

82,075

68,266

Troubled debt restructurings included in accruing loans held for investment ($000's)

1,139

1,584

1,954

1,919