Last10K.com

Hilltop Holdings Inc. (HTH) SEC Filing 8-K Material Event for the period ending Thursday, October 28, 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 Third Quarter 2021

DALLAS — (BUSINESS WIRE) October 28, 2021 — Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the third quarter of 2021. Hilltop produced income from continuing operations to common stockholders of $92.9 million, or $1.15 per diluted share, for the third quarter of 2021, compared to $152.5 million, or $1.69 per diluted share, for the third quarter of 2020. Hilltop’s financial results from continuing operations for the third quarter of 2021 included a decrease in year-over-year mortgage origination segment net gains from sales of loans and other mortgage production income as well as declines in net revenues within the broker-dealer segment’s structured finance business and fixed income services lines, partially offset by improvements in the macroeconomic outlook and resulting beneficial impact on loan expected loss rates within the banking segment.

Including income from discontinued operations related to the former insurance business, income applicable to common stockholders was $92.9 million, or $1.15 per diluted share, for the third quarter of 2021, compared to $153.3 million, or $1.70 per diluted share, for the third quarter of 2020.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.12 per common share, payable on November 30, 2021, to all common stockholders of record as of the close of business on November 15, 2021. Additionally, during the third quarter of 2021, Hilltop paid approximately $74 million to repurchase an aggregate of 2,241,761 shares of its common stock at a weighted average price of $33.06 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 October 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 $200.0 million, an increase of $50.0 million. As a result of share repurchases during 2021 and giving effect to such increase, Hilltop has approximately $76 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 and into 2022 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 happy to announce strong operating results for all three businesses at Hilltop. We have seen continued improvement in our asset quality, which is a reflection of both the sound lending practices employed by PlainsCapital Bank and the improving economic environment. The trend of increasing deposits remained steady in the quarter, and we are working diligently to deploy that excess liquidity through relationship-based lending and prudent management of our securities portfolio. At PrimeLending and the mortgage-centric businesses at Hilltop Securities, continued strength in the housing market and solid execution from our teams resulted in strong profitability. In addition, Hilltop continued to return a portion of our excess capital to shareholders through approximately $10 million of dividends paid and $74 million of share repurchases during the third quarter.”

Third Quarter 2021 Highlights for Hilltop:

The reversal of credit losses was $5.8 million during the third quarter of 2021, compared to a reversal of credit losses of $28.7 million in the second quarter of 2021;
oThe reversal of credit losses during the third quarter of 2021 primarily reflected improvements in both macroeconomic forecast assumptions and credit quality metrics on COVID-19 impacted industry sector exposures;

Graphic


For the third 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 $241.9 million, compared to $355.6 million in the third quarter of 2020, a 32.0% decrease;
oMortgage loan origination production volume was $5.6 billion during the third quarter of 2021, compared to $6.5 billion in the third quarter of 2020;
oNet gains from mortgage loans sold to third parties declined to 359 basis points during the third quarter of 2021, compared to 376 basis points in the second quarter of 2021.
Hilltop’s consolidated annualized return on average assets and return on average equity for the third quarter of 2021 were 2.13% and 14.96%, respectively, compared to 3.71% and 25.94%, respectively, for the third quarter of 2020;
Hilltop’s book value per common share increased to $31.36 at September 30, 2021, compared to $30.44 at June 30, 2021;
Hilltop’s total assets were $18.0 billion and $17.7 billion at September 30, 2021 and June 30, 2021, respectively;
Loans1, net of allowance for credit losses, decreased to $6.8 billion at September 30, 2021 compared to $6.9 billion at June 30, 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 $133 million as of September 30, 2021, compared to approximately $261 million as of June 30, 2021;
oThrough October 22, 2021, the Small Business Administration, or SBA, had approved approximately 3,300 PPP forgiveness applications from the Bank totaling approximately $775 million, with PPP loans of approximately $12 million pending SBA review and approval.
Non-performing loans were $62.2 million, or 0.64% of total loans, at September 30, 2021, compared to $69.0 million, or 0.66% of total loans, at June 30, 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 $17 million as of September 30, 2021, compared to approximately $76 million in active deferment as of June 30, 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 decreased by 26.9% from June 30, 2021 to $2.1 billion at September 30, 2021;
Total deposits were $12.1 billion and $11.7 billion at September 30, 2021 and June 30, 2021, respectively;
Hilltop maintained strong capital levels2 with a Tier 1 Leverage Ratio3 of 12.64% and a Common Equity Tier 1 Capital Ratio of 21.28% at September 30, 2021;
We redeemed in full all of our outstanding junior subordinated debentures of $67.0 million, which resulted in the full redemption to the holders of the associated preferred securities and common securities during the third quarter of 2021;
Hilltop’s consolidated net interest margin4 decreased to 2.53% for the third quarter of 2021, compared to 2.62% in the second quarter of 2021;
oIncludes previously deferred interest income of $4.6 million during the third quarter of 2021 related to PPP loan-related origination fees.
For the third quarter of 2021, noninterest income from continuing operations was $367.9 million, compared to $502.7 million in the third quarter of 2020, a 26.8% decrease;
For the third quarter of 2021, noninterest expense from continuing operations was $355.2 million, compared to $399.3 million in the third quarter of 2020, a 11.1% decrease; and
Hilltop’s effective tax rate from continuing operations was 22.8% during the third quarter of 2021, compared to 22.7% 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 $645.6 million and $628.3 million at September 30, 2021 and June 30, 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

September 30,

June 30,

March 31,

December 31,

September 30,

(in 000's)

    

2021

    

2021

    

2021

    

2020

    

2020

Cash and due from banks

$

2,463,111

$

1,372,818

$

1,564,489

$

1,062,560

$

1,277,865

Federal funds sold

406

387

396

386

420

Assets segregated for regulatory purposes

269,506

207,284

273,393

290,357

221,621

Securities purchased under agreements to resell

155,908

202,638

106,342

80,319

90,103

Securities:

 

Trading, at fair value

609,813

682,483

528,712

694,255

667,751

Available for sale, at fair value, net

1,994,183

1,817,807

1,715,406

1,462,205

1,310,240

Held to maturity, at amortized cost, net

277,419

288,776

300,088

311,944

323,299

Equity, at fair value

221

193

189

140

117

2,881,636

2,789,259

2,544,395

2,468,544

2,301,407

Loans held for sale

 

2,108,878

2,885,458

2,538,986

2,788,386

2,547,975

Loans held for investment, net of unearned income

7,552,926

7,645,227

7,810,657

7,693,141

7,945,560

Allowance for credit losses

 

(109,512)

(115,269)

(144,499)

(149,044)

(155,214)

Loans held for investment, net

7,443,414

7,529,958

7,666,158

7,544,097

7,790,346

Broker-dealer and clearing organization receivables

1,419,652

1,403,447

1,596,817

1,404,727

1,363,478

Premises and equipment, net

 

210,026

212,402

213,304

211,595

208,078

Operating lease right-of-use assets

 

115,942

115,698

101,055

105,757

109,354

Mortgage servicing assets

110,931

124,497

142,125

143,742

127,712

Other assets

526,339

535,536

648,895

555,983

607,932

Goodwill

267,447

267,447

267,447

267,447

267,447

Other intangible assets, net

16,455

17,705

19,035

20,364

21,814

Total assets

$

17,989,651

$

17,664,534

$

17,682,837

$

16,944,264

$

16,935,552

Deposits:

Noninterest-bearing

$

4,433,148

$

4,231,082

$

4,031,181

$

3,612,384

$

3,557,603

Interest-bearing

 

7,699,014

7,502,703

7,701,598

7,629,935

7,704,312

Total deposits

12,132,162

11,733,785

11,732,779

11,242,319

11,261,915

Broker-dealer and clearing organization payables

 

1,496,923

1,439,620

1,546,227

1,368,373

1,310,835

Short-term borrowings

747,040

915,919

676,652

695,798

780,109

Securities sold, not yet purchased, at fair value

113,064

132,950

97,055

79,789

56,023

Notes payable

395,804

396,653

401,713

381,987

396,006

Operating lease liabilities

134,296

134,019

120,339

125,450

122,402

Junior subordinated debentures

67,012

67,012

67,012

67,012

Other liabilities

468,020

348,200

595,045

632,889

502,517

Total liabilities

15,487,309

15,168,158

15,236,822

14,593,617

14,496,819

Common stock

790

812

823

822

902

Additional paid-in capital

1,270,272

1,302,439

1,319,518

1,317,929

1,443,588

Accumulated other comprehensive income

367

7,093

3,486

17,763

23,790

Retained earnings

1,204,307

1,159,304

1,094,727

986,792

942,461

Deferred compensation employee stock trust, net

751

754

752

771

774

Employee stock trust

(116)

(121)

(121)

(138)

(143)

Total Hilltop stockholders' equity

2,476,371

2,470,281

2,419,185

2,323,939

2,411,372

Noncontrolling interests

25,971

26,095

26,830

26,708

27,361

Total stockholders' equity

2,502,342

2,496,376

2,446,015

2,350,647

2,438,733

Total liabilities & stockholders' equity

$

17,989,651

$

17,664,534

$

17,682,837

$

16,944,264

$

16,935,552

Graphic


Three Months Ended

Consolidated Income Statements

September 30,

June 30,

March 31,

December 31,

September 30,

(in 000's, except per share data)

    

2021

    

2021

    

2021

    

2020

    

2020

    

Interest income:

Loans, including fees

$

99,769

$

104,162

$

104,277

$

109,328

$

104,955

Securities borrowed

8,585

15,586

28,972

14,445

10,705

Securities:

Taxable

12,341

11,125

10,251

9,845

11,035

Tax-exempt

2,687

2,338

2,102

1,862

1,687

Other

1,796

1,607

1,321

1,381

1,446

Total interest income

125,178

134,818

146,923

136,861

129,828

Interest expense:

 

Deposits

5,303

6,176

7,741

9,269

10,700

Securities loaned

6,519

12,345

25,486

12,014

8,729

Short-term borrowings

2,400

2,374

2,013

2,154

2,346

Notes payable

5,465

5,253

4,797

4,807

4,904

Junior subordinated debentures

419

577

562

609

608

Other

(18)

177

642

636

641

Total interest expense

20,088

26,902

41,241

29,489

27,928

Net interest income

105,090

107,916

105,682

107,372

101,900

Provision for (reversal of) credit losses

(5,819)

(28,720)

(5,109)

(3,482)

(602)

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

110,909

136,636

110,791

110,854

102,502

Noninterest income:

 

Net gains from sale of loans and other mortgage production income

203,152

199,625

267,080

247,360

307,896

Mortgage loan origination fees

38,780

42,146

43,155

50,193

47,681

Securities commissions and fees

34,412

38,300

38,314

35,921

32,496

Investment and securities advisory fees and commissions

49,646

32,268

27,695

42,161

36,866

Other

41,955

27,560

41,341

72,296

77,772

Total noninterest income

367,945

339,899

417,585

447,931

502,711

Noninterest expense:

 

Employees' compensation and benefits

258,679

248,486

270,353

291,489

294,907

Occupancy and equipment, net

25,428

25,004

24,429

27,596

26,124

Professional services

14,542

16,239

13,585

21,927

17,522

Other

56,525

53,639

58,295

61,336

60,792

Total noninterest expense

355,174

343,368

366,662

402,348

399,345

Income from continuing operations before income taxes

123,680

133,167

161,714

156,437

205,868

Income tax expense

 

28,257

31,234

37,770

39,295

46,820

Income from continuing operations

95,423

101,933

123,944

117,142

159,048

Income from discontinued operations, net of income taxes

3,734

736

Net income

95,423

101,933

123,944

120,876

159,784

Less: Net income attributable to noncontrolling interest

 

2,517

2,873

3,599

4,431

6,505

Income attributable to Hilltop

$

92,906

$

99,060

$

120,345

$

116,445

$

153,279

Earnings per common share:

Basic:

Earnings from continuing operations

$

1.16

$

1.21

$

1.46

$

1.31

$

1.69

Earnings from discontinued operations

0.04

0.01

$

1.16

$

1.21

$

1.46

$

1.35

$

1.70

Diluted:

Earnings from continuing operations

$

1.15

$

1.21

$

1.46

$

1.30

$

1.69

Earnings from discontinued operations

0.05

0.01

$

1.15

$

1.21

$

1.46

$

1.35

$

1.70

Cash dividends declared per common share

$

0.12

$

0.12

$

0.12

$

0.09

$

0.09

Weighted average shares outstanding:

Basic

80,109

81,663

82,169

86,269

90,200

Diluted

80,542

82,199

82,657

86,420

90,200

Three Months Ended September 30, 2021

Segment Results

Mortgage

    

    

All Other and

    

Continuing

(in 000's)

    

Banking

    

Broker-Dealer

    

Origination

    

Corporate

    

Eliminations

    

Operations

Net interest income (expense)

$

99,978

$

10,427

$

(3,503)

$

(4,341)

$

2,529

$

105,090

Provision for (reversal of) credit losses

 

(5,775)

 

(44)

 

 

 

 

(5,819)

Noninterest income

 

11,727

 

116,143

 

242,270

 

757

 

(2,952)

 

367,945

Noninterest expense

 

54,567

 

109,193

 

176,587

 

15,355

 

(528)

 

355,174

Income (loss) from continuing operations before taxes

$

62,913

$

17,421

$

62,180

$

(18,939)

$

105

$

123,680

Nine Months Ended September 30, 2021

Segment Results

Mortgage

    

    

All Other and

    

Continuing

(in 000's)

    

Banking

    

Broker-Dealer

    

Origination

    

Corporate

    

Eliminations

    

Operations

Net interest income (expense)

$

309,330

$

31,623

$

(16,554)

$

(13,720)

$

8,009

$

318,688

Provision for (reversal of) credit losses

 

(39,725)

 

77

 

(39,648)

Noninterest income

 

33,293

 

298,229

794,679

8,140

(8,912)

 

1,125,429

Noninterest expense

 

167,869

 

287,831

573,884

37,015

(1,395)

 

1,065,204

Income (loss) from continuing operations before taxes

$

214,479

$

41,944

$

204,241

$

(42,595)

$

492

$

418,561

Graphic


Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

Selected Financial Data

2021

    

2021

    

2021

    

2020

    

2020

Hilltop Consolidated (1):

 

Return on average stockholders' equity

14.96%

16.42%

20.58%

20.56%

25.94%

Return on average assets

2.13%

2.29%

2.90%

2.83%

3.71%

Net interest margin (2)

2.53%

2.62%

2.69%

2.71%

2.56%

Net interest margin (taxable equivalent) (3):

As reported

2.54%

 

2.63%

2.69%

2.72%

2.57%

Impact of purchase accounting

 

9 bps

16 bps

13 bps

15 bps

10 bps

Without purchase accounting impact

2.45%

2.47%

2.56%

2.57%

2.47%

Book value per common share ($)

31.36

30.44

29.41

28.28

26.72

Shares outstanding, end of period (000's)

78,959

81,153

82,261

82,185

90,238

Dividend payout ratio (4)

10.34%

 

9.92%

8.19%

6.67%

5.30%

Banking Segment:

Net interest margin (2)

2.99%

3.19%

3.30%

3.37%

3.03%

Net interest margin (taxable equivalent) (3):

As reported

3.00%

3.20%

3.31%

3.38%

3.03%

Impact of purchase accounting

11 bps

20 bps

17 bps

20 bps

13 bps

Accretion of discount on loans ($000's)

3,221

6,001

4,851

5,629

3,346

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

62

(510)

564

(2,688)

(567)

Return on average assets

1.36%

1.91%

1.48%

1.37%

1.14%

Fee income ratio

10.5%

8.9%

9.8%

10.2%

9.2%

Efficiency ratio

48.8%

49.7%

48.4%

53.0%

52.7%

Employees' compensation and benefits ($000's)

31,500

33,369

30,992

34,007

29,808

Broker-Dealer Segment:

Net revenue ($000's) (5)

126,570

94,145

109,137

150,070

149,190

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

82,429

62,289

66,157

87,622

88,211

Variable compensation expense ($000's)

53,505

34,409

37,412

60,295

60,774

Compensation as a % of net revenue (6)

65.1%

66.2%

60.6%

58.4%

59.1%

Pre-tax margin (7)

13.8%

7.3%

16.2%

22.8%

23.7%

Mortgage Origination Segment:

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

Home purchases

3,948,420

4,018,922

2,902,710

3,683,564

4,183,560

Refinancings

1,646,208

1,881,121

3,281,395

3,114,630

2,266,793

Total mortgage loan originations - volume

5,594,628

5,900,043

6,184,105

6,798,194

6,450,353

Mortgage loan sales - volume ($000's)

6,195,559

5,524,226

6,350,837

6,571,234

6,521,773

Net gains from mortgage loan sales (basis points):

Loans sold to third parties

359

376

398

451

441

Impact of loans retained by banking segment

(13)

(12)

(10)

(3)

(1)

As reported

346

364

388

448

440

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

110,931

124,497

142,125

143,742

127,712

Employees' compensation and benefits ($000's)

134,814

145,401

166,248

163,822

161,738

Variable compensation expense ($000's)

88,153

97,081

115,486

116,736

116,275


(1)Ratios and financial data presented on a consolidated basis. For all 2020 periods presented, information includes 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 $0.6 million, $0.4 million, $0.2 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.

September 30,

June 30,

March 31,

December 31,

September 30,

Capital Ratios

    

2021

    

2021

    

2021

    

2020

    

2020

Tier 1 capital (to average assets):

PlainsCapital

 

10.02%

 

10.22%

10.50%

10.44%

10.19%

Hilltop

12.64%

 

12.87%

13.01%

12.64%

13.03%

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

PlainsCapital

15.40%

 

15.00%

14.74%

14.40%

14.64%

Hilltop

 

21.28%

 

20.22%

19.63%

18.97%

19.85%

Tier 1 capital (to risk-weighted assets):

 

 

PlainsCapital

15.40%

 

15.00%

14.74%

14.40%

14.64%

Hilltop

 

21.28%

 

20.82%

20.22%

19.57%

20.46%

Total capital (to risk-weighted assets):

PlainsCapital

 

16.32%

 

15.95%

15.64%

15.27%

15.49%

Hilltop

24.00%

 

23.48%

22.96%

22.34%

23.22%

Graphic


September 30,

June 30,

March 31,

December 31,

September 30,

Non-Performing Assets Portfolio Data

    

2021

    

2021

    

2021

    

2020

    

2020

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

 

Commercial real estate

5,705

7,211

10,668

11,133

14,079

Commercial and industrial

29,808

33,033

36,144

34,049

38,708

Construction and land development

366

474

501

507

528

1-4 family residential

25,255

27,100

30,937

32,263

28,707

Consumer

24

26

26

28

53

Broker-dealer

61,158

67,844

78,276

77,980

82,075

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

1,038

1,139

1,584

1,954

1,919

Non-performing loans ($000's)