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Hilltop Holdings Inc. Announces Financial Results for Third Quarter 2021

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DALLAS, October 28, 2021--(BUSINESS WIRE)--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;

    • The 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;

  • 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;

    • Mortgage 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;

    • Net 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;

    • 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 $133 million as of September 30, 2021, compared to approximately $261 million as of June 30, 2021;

    • Through 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;

    • 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 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;

    • Includes 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.

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

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

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