Hilltop Holdings Inc. Announces Financial Results for Second Quarter 2014 (7/30/14)
DALLAS--(BUSINESS WIRE)--Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”), the parent company of PlainsCapital Corporation (“PlainsCapital”), announced financial results for the second quarter of 2014. PlainsCapital, through its operating subsidiaries PlainsCapital Bank (the “Bank”), PrimeLending and First Southwest, provides banking, mortgage origination and financial advisory services, respectively. Hilltop’s insurance subsidiary, National Lloyds Corporation (“NLC”), provides property and casualty insurance.
Hilltop produced income to common stockholders of $27.1 million, or $0.30 per diluted share, for the second quarter of 2014, compared to $20.9 million, or $0.24 per diluted share, for the second quarter of 2013. Hilltop’s annualized return on average assets and return on average equity for the second quarter of 2014 were 1.24% and 7.99%, respectively. The return on average assets and return on average equity for the second quarter of 2013 were 1.24% and 7.29%, respectively.
“Hilltop had solid financial results for the quarter. The Bank’s performance was strong, driven by a higher yielding loan portfolio, offset by elevated expenses from the FNB Transaction. Our mortgage business continues to gain market share due to its strong purchase franchise and produced positive results. National Lloyds had year over year improved results from less severe weather, exposure management and ratings initiatives,” said Jeremy Ford, CEO of Hilltop.
“Additionally, we continue to be excited about combining the customers, employees and cultures of SWS and First Southwest. This pending transaction is part of our focused strategy to build a premier Texas-based bank and prominent diversified financial services company.”
Second Quarter 2014 Highlights for Hilltop:
• Hilltop’s total assets increased to $9.4 billion at June 30, 2014, compared to $9.0 billion at March 31, 2014;
• Total stockholders’ equity increased by $41.9 million from March 31, 2014 to $1.4 billion at June 30, 2014;
• Non-covered loans1 held for investment, net of allowance for loan losses, increased by 1.8% to $3.7 billion, and covered loans1, net of allowance for loan losses, decreased by 7.6% to $840.9 million from March 31, 2014 to June 30, 2014;
• Loans held for sale increased by $523.7 million to $1.4 billion from March 31, 2014 to June 30, 2014;
• Total deposits decreased by $507.9 million from March 31, 2014 to $6.2 billion at June 30, 2014;
• Hilltop was well-capitalized with a Tier 1 Leverage Ratio2 of 13.51% and Total Capital Ratio of 18.79% at June 30, 2014; and
• Hilltop continues to retain approximately $158 million of freely usable cash, as well as excess capital at its subsidiaries, at June 30, 2014.
1 “Covered loans” refers to loans acquired in the FNB Transaction that are subject to loss-share agreements with the FDIC, while all other loans are referred to as “non-covered loans.” 2 Based on the end of period Tier 1 capital divided by total average assets during the second quarter of 2014, excluding goodwill and intangible assets.
For the second quarter of 2014, consolidated taxable equivalent net interest income was $99.0 million compared with $69.0 million in the second quarter of 2013, a 43.5% increase primarily due to the inclusion of operations associated with the assumption of substantially all of the liabilities and acquisition of substantially all of the assets of Edinburg, Texas-based First National Bank from the Federal Deposit Insurance Corporation, as receiver (the “FNB Transaction”). The consolidated taxable equivalent net interest margin was 5.18% for the second quarter of 2014, a 56 basis point increase from 4.62% in the first quarter of 2014. During the second quarter of 2014, the consolidated taxable equivalent net interest margin was impacted by accretion of discount on loans of $25.9 million, amortization of premium on acquired securities of $1.0 million and amortization of premium on acquired time deposits of $2.5 million.
For the second quarter of 2014, noninterest income was $203.3 million compared to $239.2 million in the second quarter of 2013, a 15.0% decrease. The decline was primarily related to the reduction in noninterest income within our mortgage origination segment, slightly offset by increases in noninterest income in our banking and insurance segments. Net gains from sale of loans, other mortgage production income and mortgage loan origination fees declined $42.2 million from the second quarter of 2013 to $123.0 million in the second quarter of 2014. Mortgage loan originations totaled $2.8 billion in the second quarter of 2014, versus $3.5 billion in the second quarter of 2013, due to changes in interest rates and the resulting drop-off in refinancing volume. Net insurance premiums earned increased to $40.8 million in the second quarter of 2014 from $38.6 million in the second quarter of 2013, which was primarily attributable to rate and volume increases in our core homeowners and mobile home products. Advisory fees and commissions from our financial advisory segment were $22.3 million in the second quarter of 2014 compared to $26.0 million in the second quarter of 2013, as results year over year declined in the public finance and capital markets businesses.
For the second quarter of 2014, noninterest expense was $251.2 million compared to $260.4 million in the second quarter of 2013, a 3.5% decrease. Employees’ compensation and benefits declined $8.3 million, or 6.2%, from the second quarter of 2013 to $124.4 million in the second quarter of 2014, primarily due to lower variable compensation tied to mortgage origination volume and lower fixed compensation resulting from headcount reductions in the third and fourth quarters of 2013 within our mortgage origination segment, offset by the addition of compensation expense within our banking segment due to the FNB Transaction. Loss and loss adjustment expenses declined to $35.3 million in the second quarter of 2014 from $48.2 million in the second quarter of 2013. This decline was primarily due to lower claim volumes that resulted from the significant decline in severe weather-related events during 2014. Primarily caused by the FNB Transaction, occupancy and equipment expense increased by $5.6 million from the second quarter of 2013 to $25.8 million in the second quarter of 2014, and other noninterest expense increased to $54.1 million in the second quarter of 2014 from $47.7 million in the second quarter of 2013. Amortization of identifiable intangibles from purchase accounting was $2.6 million for the second quarter of 2014.
For the second quarter of 2014, the provision for loan losses was $5.5 million, compared to $11.3 million for the second quarter of 2013. The second quarter of 2014 provision included charges for loan losses related to newly originated loans and acquired loans without credit impairment at acquisition of $3.9 million and purchased credit impaired (“PCI”) loans of $1.6 million. Net charge-offs on non-covered loans for the second quarter of 2014 were $2.3 million, and the allowance for non-covered loan losses was $36.4 million, or 0.98% of total non-covered loans at June 30, 2014. Non-covered, non-performing assets at June 30, 2014 were $28.0 million, or 0.30% of total assets, compared to $28.2 million, or 0.32% of total assets, at December 31, 2013.
SWS Group Transaction
On March 31, 2014, we entered into a definitive merger agreement with SWS Group, Inc. (“SWS”) providing for the merger of SWS with and into a subsidiary of Hilltop formed for the purpose of facilitating this transaction. Under the terms of the merger agreement, SWS stockholders will receive per share consideration of 0.2496 shares of Hilltop common stock and $1.94 of cash, equating to $7.25 per share based on Hilltop’s closing price on June 30, 2014. The value of the merger consideration will fluctuate with the market price of Hilltop common stock. We intend to fund the cash portion of the consideration through available cash. The merger is subject to customary closing conditions, including regulatory approvals and approval of the stockholders of SWS, and is expected to be completed prior to the end of 2014.
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