Hilltop Holdings Inc. Announces Financial Results for Second Quarter 2019 - Hilltop Hldgs (NYSE:HTH)

Hilltop Holdings Inc. HTH ("Hilltop") today announced financial results for the second quarter of 2019. Hilltop produced income to common stockholders of $57.8 million, or $0.62 per diluted share, for the second quarter of 2019, compared to $33.1 million, or $0.35 per diluted share, for the second quarter of 2018.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.08 per common share payable on August 30, 2019, to all common stockholders of record as of the close of business on August 15, 2019. Additionally, pursuant to the stock repurchase program authorized by the Hilltop Board of Directors in January 2019, Hilltop paid $25.0 million to repurchase 1,214,843 shares at an average price of $20.54 during the second quarter of 2019. These shares were returned to the pool of authorized but unissued shares of common stock. Aggregate repurchases of $25.0 million remain available under this program, which expires in January 2020. Share repurchase amounts include the repurchase of common shares to offset issuances under the employee compensation plan.

Jeremy Ford, CEO of Hilltop, said, "Our second quarter results demonstrate the strength and diversification of our franchise, as pre-tax contribution grew in our three largest businesses. At Hilltop Securities, our investments in Structured Finance and Capital Markets, combined with a supportive market environment, generated significant revenue and income growth. Total average loans held for investment grew by 11% from the second quarter of 2018 and credit quality remains sound. PrimeLending's pre-tax contribution increased by 62% from the prior year, driven by our focus on profitable volume and cost management. While we are very pleased with the results from the first half of 2019, our team remains committed to generating long-term stockholder value by delivering prudent growth and executing on our platform efficiency initiatives."

Second Quarter 2019 Highlights for Hilltop:

Hilltop's annualized return on average assets and return on average equity for the second quarter of 2019 were 1.74% and 11.63%, respectively, compared to 1.03% and 6.95%, respectively, for the second quarter of 2018;
Hilltop's book value per common share increased to $21.85 at June 30, 2019, compared to $21.23 at March 31, 2019;
Hilltop's total assets were $14.3 billion at June 30, 2019, compared to $13.5 billion at March 31, 2019;
Loans¹, net of allowance for loan losses, increased to $6.6 billion compared to $6.5 billion at March 31, 2019;
Non-performing loans were $32.0 million, or 0.36% of total loans at June 30, 2019, compared to $30.9 million, or 0.38% of total loans, at March 31, 2019;
Loans held for sale increased by 51.9% from March 31, 2019 to $1.6 billion at June 30, 2019;
Total deposits were $8.5 billion at June 30, 2019, compared to $8.3 billion at March 31, 2019;
Hilltop maintained strong capital levels with a Tier 1 Leverage Ratio² of 13.00% and a Common Equity Tier 1 Capital Ratio of 16.32% at June 30, 2019;
Hilltop's net interest margin³decreased to 3.49% for the second quarter of 2019, compared to 3.69% in the first quarter of 2019;
The provision (recovery) for loan losses was ($0.7) million during the second quarter of 2019, compared to $1.0 million in the first quarter of 2019;
For the second quarter of 2019, noninterest income was $312.9 million, compared to $279.4 million in the second quarter of 2018, a 12.0% increase;
For the second quarter of 2019, noninterest expense was $343.7 million, compared to $338.5 million in the second quarter of 2018, a 1.5% increase; and
Hilltop's effective tax rate decreased to 23.1% during the second quarter of 2019, compared to 24.3% during the same period in 2018.

¹	"Loans" reflect loans held for investment excluding broker-dealer loans, net of allowance for loan losses, of $570.3 million and $491.8 million at June 30, 2019 and March 31, 2019, respectively.
²	Based on the end of period Tier 1 capital divided by total average assets during the quarter, excluding goodwill and intangible assets.
³	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)	2019			2019			2018			2018			2018
Cash and due from banks	$	342,001		$	313,192		$	644,073		$	405,682		$	353,432
Federal funds sold		521			438			400			468			403
Assets segregated for regulatory purposes		151,271			156,851			133,993			220,115			128,417
Securities purchased under agreements to resell		50,660			65,205			61,611			164,656			229,172
Securities:
Trading, at fair value		601,524			703,295			745,466			660,314			634,197
Available for sale, at fair value		1,009,924			1,019,851			875,658			874,496			811,218
Held to maturity, at amortized cost		365,905			369,865			351,012			348,163			353,192
Equity, at fair value		19,592			19,343			19,679			21,555			21,218
		1,996,945			2,112,354			1,991,815			1,904,528			1,819,825
Loans held for sale		1,609,477			1,059,280			1,393,246			1,524,980			1,953,562
Loans held for investment, net of unearned income		7,202,604			7,011,679			6,930,458			6,940,306			6,545,630
Allowance for loan losses		(55,177	)		(58,809	)		(59,486	)		(60,152	)		(61,970	)
Loans held for investment, net		7,147,427			6,952,870			6,870,972			6,880,154			6,483,660

Broker-dealer and clearing organization receivables		1,707,249			1,651,199			1,440,287			1,491,507			1,614,951
Premises and equipment, net		208,975			210,333			237,373			236,172			172,911
Operating lease right-of-use assets		123,832			108,806			—			—			—
Other assets		602,143			591,442			580,362			604,445			648,317
Goodwill		291,435			291,435			291,435			291,435			251,808
Other intangible assets, net		33,934			35,965			38,005			40,394			32,716
Total assets	$	14,265,870		$	13,549,370		$	13,683,572		$	13,764,536		$	13,689,174

Deposits:
Non interest-bearing	$	2,598,253		$	2,490,144		$	2,560,750		$	2,525,677		$	2,468,332
Interest-bearing		5,864,826			5,807,975			5,975,406			5,764,556			5,345,290
Total deposits		8,463,079			8,298,119			8,536,156			8,290,233			7,813,622
Broker-dealer and clearing organization payables		1,531,891			1,490,227			1,294,925			1,396,401			1,409,904
Short-term borrowings		1,338,893			914,525			1,065,807			1,216,649			1,610,735
Securities sold, not yet purchased, at fair value		45,447			69,354			81,667			179,582			251,581
Notes payable		231,923			225,372			228,872			220,192			227,736
Operating lease liabilities		132,750			118,452			—			—			—
Junior subordinated debentures		67,012			67,012			67,012			67,012			67,012
Other liabilities		403,070			351,178			435,240			430,309			392,171
Total liabilities		12,214,065			11,534,239			11,709,679			11,800,378			11,772,761

Common stock		928			938			936			946			946
Additional paid-in capital		1,473,599			1,491,585			1,489,816			1,504,467			1,502,105
Accumulated other comprehensive income (loss)		7,862			(1,062	)		(8,627	)		(14,722	)		(11,846	)
Retained earnings		544,275			499,452			466,737			448,923			419,683
Deferred compensation employee stock trust, net		788			827			825			860			857
Employee stock trust		(171	)		(213	)		(217	)		(252	)		(252	)
Total Hilltop stockholders' equity		2,027,281			1,991,527			1,949,470			1,940,222			1,911,493
Noncontrolling interests		24,524			23,604			24,423			23,936			4,920
Total stockholders' equity		2,051,805			2,015,131			1,973,893			1,964,158			1,916,413
Total liabilities & stockholders' equity	$	14,265,870		$	13,549,370		$	13,683,572		$	13,764,536		$	13,689,174


	Three Months Ended
Consolidated Income Statements	June 30,			March 31,		December 31,		September 30,			June 30,
(in 000's, except per share data)	2019			2019		2018		2018			2018
Interest income:
Loans, including fees	$	114,325		$	110,870	$	119,322	$	113,535		$	103,924
Securities borrowed		15,517			16,859		16,782		16,346			17,486
Securities:
Taxable		14,684			15,616		15,512		11,994			12,516
Tax-exempt		1,513			1,498		1,648		1,717			1,697
Other		4,017			5,197		4,438		4,734			4,417
Total interest income		150,056			150,040		157,702		148,326			140,040

Interest expense:
Deposits		18,036			17,106		14,838		12,353			10,136
Securities loaned		13,470			14,738		13,935		13,984			15,075
Short-term borrowings		6,897			5,471		7,476		7,831			6,466
Notes payable		2,629			2,641		2,627		2,702			2,437
Junior subordinated debentures		986			1,001		968		955			918
Other		162			152		143		160			160
Total interest expense		42,180			41,109		39,987		37,985			35,192

Net interest income		107,876			108,931		117,715		110,341			104,848
Provision (recovery) for loan losses		(672	)		951		6,926		(371	)		340
Net interest income after provision (recovery) for loan losses		108,548			107,980		110,789		110,712			104,508

Noninterest income:
Net gains from sale of loans and other mortgage production income		131,173			96,139		90,628		116,243			132,478
Mortgage loan origination fees		33,409			21,873		26,615		27,004			29,318
Securities commissions and fees		34,142			35,969		36,984		36,968			38,320
Investment and securities advisory fees and commissions		22,859			20,160		26,260		23,487			21,965
Net insurance premiums earned		33,466			33,203		34,146		34,185			34,105
Other		57,822			45,124		23,883		31,810			23,248
Total noninterest income		312,871			252,468		238,516		269,697			279,434

Noninterest expense:
Employees' compensation and benefits		215,743			189,898		179,881		205,575			200,632
Occupancy and equipment, net		28,219			28,023		30,512		29,015			27,893
Professional services		23,753			22,942		26,793		27,984			26,020
Loss and loss adjustment expenses		24,981			14,926		20,694		18,712			24,409
Other		50,981			53,296		52,939		54,425			59,563
Total noninterest expense		343,677			309,085		310,819		335,711			338,517

Income before income taxes		77,742			51,363		38,486		44,698			45,425
Income tax expense		17,951			11,586		8,928		7,600			11,034
Net income		59,791			39,777		29,558		37,098			34,391
Less: Net income attributable to noncontrolling interest		1,980			991		1,443		1,293			1,311
Income attributable to Hilltop	$	57,811		$	38,786	$	28,115	$	35,805		$	33,080

Earnings per common share:
Basic	$	0.62		$	0.41	$	0.30	$	0.38		$	0.35
Diluted	$	0.62		$	0.41	$	0.30	$	0.38		$	0.35

Cash dividends declared per common share	$	0.08		$	0.08	$	0.07	$	0.07		$	0.07

Weighted average shares outstanding:
Basic		93,399			93,669		94,092		94,554			95,270
Diluted		93,418			93,669		94,130		94,610			95,358


	Three Months Ended June 30, 2019
Segment Results							Mortgage									All Other and			Hilltop
(in 000's)	Banking			Broker-Dealer			Origination			Insurance			Corporate			Eliminations			Consolidated
Net interest income (expense)	$	93,423		$	11,410		$	(1,031	)	$	592		$	(1,331	)	$	4,813		$	107,876
Provision (recovery) for loan losses		(670	)		(2	)		—			—			—			—			(672	)
Noninterest income		10,742			105,559			164,548			36,151			665			(4,794	)		312,871
Noninterest expense		58,251			94,870			141,721			39,589			9,274			(28	)		343,677
Income (loss) before income taxes	$	46,584		$	22,101		$	21,796		$	(2,846	)	$	(9,940	)	$	47		$	77,742


	Six Months Ended June 30, 2019
Segment Results						Mortgage								All Other and			Hilltop
(in 000's)	Banking		Broker-Dealer			Origination			Insurance		Corporate			Eliminations			Consolidated
Net interest income (expense)	$	186,113	$	24,260		$	(1,499	)	$	1,236	$	(2,661	)	$	9,358		$	216,807
Provision (recovery) for loan losses		355		(76	)		—			—		—			—			279
Noninterest income		21,362		196,865			282,580			72,643		1,390			(9,501	)		565,339
Noninterest expense		118,977		182,677			256,398			69,926		24,836			(52	)		652,762
Income (loss) before income taxes	$	88,143	$	38,524		$	24,683		$	3,953	$	(26,107	)	$	(91	)	$	129,105


	Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,
Selected Financial Data	2019		2019		2018		2018		2018

Hilltop Consolidated:
Return on average stockholders' equity		11.63%		8.04%		5.76%		7.41%		6.95%
Return on average assets		1.74%		1.21%		0.86%		1.07%		1.03%
Net interest margin (1)		3.49%		3.69%		3.75%		3.48%		3.46%
Net interest margin (taxable equivalent) (2):
As reported		3.49%		3.70%		3.76%		3.49%		3.47%
Impact of purchase accounting		23 bps		32 bps		43 bps		28 bps		29 bps
Book value per common share ($)		21.85		21.23		20.83		20.51		20.21
Shares outstanding, end of period (000's)		92,775		93,821		93,610		94,594		94,571
Dividend payout ratio (3)		12.92%		19.32%		23.43%		18.48%		20.16%

Banking Segment:
Net interest margin (1)		4.06%		4.24%		4.50%		4.13%		4.11%
Net interest margin (taxable equivalent) (2):
As reported		4.06%		4.25%		4.51%		4.14%		4.12%
Impact of purchase accounting		31 bps		44 bps		61 bps		39 bps		42 bps
Accretion of discount on loans ($000's)		6,444		8,735		12,737		8,147		8,343
Net charge-offs ($000's)		2,960		1,628		7,592		1,447		1,564
Return on average assets		1.43%		1.34%		1.31%		1.19%		1.09%
Fee income ratio		10.3%		10.3%		10.1%		10.7%		10.8%
Efficiency ratio		55.9%		58.8%		56.8%		63.7%		66.5%
Employees' compensation and benefits ($000's)		33,050		32,171		31,955		36,878		32,442

Broker-Dealer Segment:
Net revenue ($000's) (4)		116,969		104,157		89,750		95,266		86,479
Employees' compensation and benefits ($000's)		70,333		63,075		54,249		59,535		52,418
Variable compensation expense ($000's)		44,833		34,581		31,744		33,574		26,036
Compensation as a % of net revenue		60.1%		60.6%		60.4%		62.5%		60.6%
Pre-tax margin (5)		18.9%		15.8%		12.1%		10.4%		9.5%

Mortgage Origination Segment:
Mortgage loan originations - volume ($000's):
Home purchases		3,329,024		2,050,760		2,586,677		3,237,444		3,615,991
Refinancings		631,065		396,282		384,990		416,201		491,384
Total mortgage loan originations - volume		3,960,089		2,447,042		2,971,667		3,653,645		4,107,375
Mortgage loan sales - volume ($000's)		3,338,070		2,711,114		3,008,793		4,015,051		3,526,603
Net gains from mortgage loan sales (basis points)		333		330		334		330		317
Mortgage servicing rights asset ($000's) (6)		53,695		62,049		66,102		68,804		57,373
Employees' compensation and benefits ($000's)		106,449		79,043		84,334		102,025		111,713
Variable compensation expense ($000's)		65,516		38,929		44,529		58,686		66,531

Insurance Segment:
Loss and LAE ratio		74.6%		45.0%		60.6%		54.7%		71.6%
Expense ratio		38.4%		41.5%		37.9%		38.8%		39.5%
Combined ratio		113.0%		86.5%		98.5%		93.5%		111.1%
Employees' compensation and benefits ($000's)		2,784		3,202		2,670		2,595		2,954

(1)	Net interest margin is defined as net interest income divided by average interest-earning assets.
(2)	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 $0.2 million, $0.2 million, $0.3 million, $0.2 million, and $0.2 million, respectively, for the periods presented and for the banking segment were $0.2 million for each of the periods presented.
(3)	Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(4)	Net revenue is defined as the sum of total broker-dealer net interest income plus total broker-dealer noninterest income.
(5)	Pre-tax margin is defined as income before income taxes divided by net revenue
(6)	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	2019			2019			2018			2018			2018
Tier 1 capital (to average assets):
PlainsCapital		12.53	%		12.61	%		12.47	%		11.86	%		12.80	%
Hilltop		13.00	%		13.22	%		12.53	%		12.40	%		12.90	%
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		13.84	%		13.89	%		13.90	%		13.88	%		14.59	%
Hilltop		16.32	%		16.75	%		16.58	%		16.95	%		17.61	%
Tier 1 capital (to risk-weighted assets):
PlainsCapital		13.84	%		13.89	%		13.90	%		13.88	%		14.59	%
Hilltop		16.77	%		17.22	%		17.04	%		17.42	%		18.10	%
Total capital (to risk-weighted assets):
PlainsCapital		14.48	%		14.60	%		14.63	%		14.63	%		15.38	%
Hilltop		17.14	%		17.64	%		17.47	%		17.87	%		18.58	%


	June 30,			March 31,			December 31,			September 30,			June 30,
Non-Performing Loans Portfolio Data	2019			2019			2018			2018			2018
Loans accounted for on a non-accrual basis ($000's):
Commercial real estate		5,276			5,332			5,324			7,506			14,256
Commercial and industrial		14,152			13,350			14,870			21,323			22,815
Construction and land development		1,413			1,473			3,278			3,402			569
1-4 family residential		11,136			10,662			10,437			4,476			4,273
Mortgage warehouse		—			—			—			—			—
Consumer		34			38			41			45			49
Broker-dealer		—			—			—			—			—
Covered		—			—			—			5,777			5,277
		32,011			30,855			33,950			42,529			47,239

Non-performing loans as a % of total loans		0.36	%		0.38	%		0.41	%		0.50	%		0.56	%

Other real estate owned ($000's)		20,753			23,066			27,578			32,518			37,824

Other repossessed assets ($000's)		—			30			68			99			168

Non-performing assets ($000's)		52,764			53,951			61,596			75,146			85,231

Non-performing assets as a % of total assets		0.37	%		0.40	%		0.45	%		0.55	%		0.62	%

Non-PCI loans past due 90 days or more and still accruing ($000's)		77,425			77,045			83,131			80,664			74,060

Troubled debt restructurings included in accruing loans held for investment ($000's)		2,256			1,313			1,339			1,362			1,389


	Three Months Ended June 30,
	2019							2018
	Average			Interest		Annualized		Average			Interest		Annualized
	Outstanding			Earned or		Yield or		Outstanding			Earned or		Yield or
Net Interest Margin (Taxable Equivalent) Details	Balance			Paid		Rate		Balance			Paid		Rate
Assets
Interest-earning assets
Loans held for sale	$	1,307,251		$	15,041	4.60	%	$	1,589,149		$	18,241	4.59	%
Loans held for investment, gross ⁽¹⁾		7,078,807			99,284	5.57	%		6,374,873			85,683	5.34	%
Investment securities - taxable		1,733,536			14,654	3.38	%		1,663,257			12,486	3.00	%
Investment securities - non-taxable ⁽²⁾		227,953			1,687	2.96	%		252,591			1,912	3.03	%
Federal funds sold and securities purchased under agreements to resell		69,369			369	2.13	%		228,786			859	1.51	%
Interest-bearing deposits in other financial institutions		325,130			1,982	2.44	%		419,006			1,890	1.81	%
Securities borrowed		1,598,063			15,517	3.84	%		1,544,235			17,486	4.48	%
Other		68,990			1,682	9.77	%		69,297			1,691	9.77	%
Interest-earning assets, gross ⁽²⁾		12,409,099			150,216	4.81	%		12,141,194			140,248	4.59	%
Allowance for loan losses		(59,437	)						(63,944	)
Interest-earning assets, net		12,349,662							12,077,250
Noninterest-earning assets		1,414,227							1,286,608
Total assets	$	13,763,889						$	13,363,858

Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits	$	5,792,236		$	18,036	1.25	%	$	5,366,535		$	10,136	0.76	%
Securities loaned		1,462,370			13,470	3.69	%		1,382,984			15,075	4.37	%
Notes payable and other borrowings		1,389,295			10,674	3.06	%		1,588,132			9,981	2.51	%
Total interest-bearing liabilities		8,643,901			42,180	1.95	%		8,337,651			35,192	1.69	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,549,792							2,492,253
Other liabilities		551,333							620,900
Total liabilities		11,745,026							11,450,804
Stockholders' equity		1,995,811							1,910,316
Noncontrolling interest		23,052							2,738
Total liabilities and stockholders' equity	$	13,763,889						$	13,363,858

Net interest income ⁽²⁾				$	108,036						$	105,056
Net interest spread ⁽²⁾						2.86	%						2.90	%
Net interest margin ⁽²⁾						3.49	%						3.47	%

(1)	Average balance includes non-accrual loans.
(2)	Presented on a taxable equivalent basis with annualized taxable equivalent adjustments based on the applicable 21% federal income tax rates for the periods presented. The adjustment to interest income was $0.2 million for both the three months ended June 30, 2019 and 2018.

Conference Call Information

Hilltop will host a live webcast and conference call at 8:00 AM Central (9:00 AM Eastern) on Friday, July 26, 2019. Hilltop President and CEO Jeremy B. Ford and Hilltop CFO William B. Furr will review second quarter 2019 financial results. Interested parties can access the conference call by dialing 1-877-508-9457 (domestic) or 1-412-317-0789 (international). The conference call also will be webcast simultaneously on Hilltop's Investor Relations website (http://ir.hilltop-holdings.com).

About Hilltop

Hilltop Holdings is a Dallas-based financial holding company. Its primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank. PlainsCapital Bank's wholly owned subsidiary, PrimeLending, provides residential mortgage lending throughout the United States. Hilltop Holdings' broker-dealer subsidiaries, Hilltop Securities Inc. and Hilltop Securities Independent Network Inc., provide a full complement of securities brokerage, institutional and investment banking services in addition to clearing services and retail financial advisory. Through Hilltop Holdings' other wholly owned subsidiary, National Lloyds Corporation, it provides property and casualty insurance through two insurance companies, National Lloyds Insurance Company and American Summit Insurance Company. At June 30, 2019, Hilltop employed approximately 5,100 people and operated approximately 440 locations in 44 states. Hilltop Holdings' common stock is listed on the New York Stock Exchange under the symbol "HTH." Find more information at Hilltop-Holdings.com, PlainsCapital.com, PrimeLending.com, Nationallloydsinsurance.com and Hilltopsecurities.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements anticipated in such statements. Forward-looking statements speak only as of the date they are made and, except as required by law, we do not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning such things as our plans, objectives, strategies, expectations, intentions and other statements that are not statements of historical fact, and may be identified by words such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goal," "intends," "may," "might," "plan," "probable," "projects," "seeks," "should," "target," "view" or "would" or the negative of these words and phrases or similar words or phrases. For a discussion of certain factors that could cause our actual results to differ materially from those described in the forward-looking statements, please see the risk factors discussed in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and other reports that are filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.

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