Hilltop Holdings Inc. Announces Financial Results for Second Quarter 2021

admin July 23, 2021

19 13 minutes read

DALLAS–(BUSINESS WIRE)–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;
- The 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;
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;
- Mortgage 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;
- Net 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;
- Includes 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;
- Through 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;
- Submissions 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;
- While 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;
- The 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 margin⁴decreased to 2.62% for the second quarter of 2021, compared to 2.69% in the first quarter of 2021;
- Includes 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;
- Includes $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.

___________________
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


	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


	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.