Hilltop Holdings Inc. Announces Financial Results for Third Quarter 2019

DALLAS–(BUSINESS WIRE)–Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the third quarter of 2019. Hilltop produced income to common stockholders of $79.4 million, or $0.86 per diluted share, for the third quarter of 2019, compared to $35.8 million, or $0.38 per diluted share, for the third quarter of 2018.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.08 per common share payable on December 3, 2019, to all common stockholders of record as of the close of business on November 15, 2019. Additionally, under the stock repurchase program approved by the Hilltop Board of Directors in January 2019, Hilltop was authorized to repurchase its outstanding common stock in the open market or through privately negotiated transactions. Hilltop has paid $73.4 million to repurchase 3,390,247 shares at an average price of $21.64 during the first nine months of 2019. These shares were returned to the pool of authorized but unissued shares of common stock. Share repurchase amounts include the repurchase of common shares to offset issuances under the employee compensation plan.

The aforementioned repurchases are inclusive of the purchase of 2,175,404 shares of our common stock from Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and Oak Hill Capital Management, LLC (collectively, “Oak Hill Capital”) for $48.4 million, or $22.25 per share, and consummated on August 20, 2019. As a result, the repurchase of shares by Hilltop from Oak Hill Capital fully utilized the stock repurchase program previously authorized in January 2019.

Based upon a review recently conducted, Hilltop determined that we did not design and maintain effective internal control over certain aspects relating to the determination of the qualitative factors considered by management in the allowance for loan losses estimation process, particularly quantitative support for such qualitative factors. Based upon the foregoing, management and the Audit Committee of the Board of Directors concluded that this control deficiency constituted a material weakness as of December 31, 2018. As of the date of this press release, we do not expect this control deficiency to result in a restatement of our consolidated financial statements.

We expect to file an amendment to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019 to include disclosures concerning this material weakness. In addition, we anticipate that the report of PricewaterhouseCoopers LLP on our internal control over financial reporting at December 31, 2018 will be revised to reflect the identification of this material weakness.

Hilltop and our Board of Directors are committed to maintaining a strong internal control environment. Management has evaluated the material weakness described above and has made significant progress updating its design and implementation of internal controls to remediate the aforementioned control deficiency and enhance our internal control environment. The remediation plan is being implemented and includes enhanced documentation and quantitative analysis of the qualitative factors considered in the estimation of the allowance for loan losses. Management expects to successfully implement the remediation plan prior to filing our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, and currently plans to evaluate our updated internal controls design and determine whether the controls have operated effectively during the fourth quarter of 2019.

Effective January 1, 2020, Hilltop will adopt the current expected credit loss model, or CECL, which will replace the current process for estimating allowance for loan losses in its entirety. Based upon the work completed to date and the current loan portfolios, we estimate that the allowance for credit losses will be between $80 million and $110 million, inclusive of the change in reserve for unfunded commitments, when CECL is adopted on January 1, 2020. The estimated increase over the current allowance for loan losses is driven by the fact that under CECL the allowance will cover expected credit losses over the entire expected life of the loan portfolios and also will take into account forecasts of expected future macroeconomic conditions. While not expected to be material, the impact of the adoption of CECL also will affect our regulatory capital, performance and other asset quality ratios.

Jeremy Ford, CEO of Hilltop, said, “This was an excellent quarter for all of the Hilltop businesses, as each improved pre-tax income versus the prior quarter and prior year. During the quarter, the Bank generated strong earnings from loan growth and a focus on efficiency, HilltopSecurities delivered profit improvement from growth in Capital Markets and Structured Finance, and National Lloyds produced solid income from reduced storm activity and the execution of our previously disclosed strategy to exit non-core states. Importantly, the mortgage team at PrimeLending reported record results by maintaining their focus on profitable originations and efficiency efforts while the mortage market conditions improved. I want to thank all of our teammates across Hilltop for their part in executing towards our combined vision and am excited about our momentum heading into the fourth quarter of 2019.”

Third Quarter 2019 Highlights for Hilltop:

• Hilltop’s annualized return on average assets and return on average equity for the third quarter of 2019 were 2.26% and 15.55%, respectively, compared to 1.07% and 7.41%, respectively, for the third quarter of 2018;
• Hilltop’s book value per common share increased to $22.71 at September 30, 2019, compared to $21.85 at June 30, 2019;
• Hilltop’s total assets were $14.8 billion at September 30, 2019, compared to $14.3 billion at June 30, 2019;
• Loans¹, net of allowance for loan losses, increased to $6.7 billion compared to $6.6 billion at June 30, 2019;
• Non-performing loans were $35.5 million, or 0.38% of total loans at September 30, 2019, compared to $32.0 million, or 0.36% of total loans, at June 30, 2019;
• Loans held for sale increased by 23.3% from June 30, 2019 to $2.0 billion at September 30, 2019;
• Total deposits were $8.7 billion at September 30, 2019, compared to $8.5 billion at June 30, 2019;
• Hilltop maintained strong capital levels with a Tier 1 Leverage Ratio² of 12.67% and a Common Equity Tier 1 Capital Ratio of 16.15% at September 30, 2019;
• Hilltop’s net interest margin³ decreased to 3.45% for the third quarter of 2019, compared to 3.49% in the second quarter of 2019;
• The provision (recovery) for loan losses was $47 thousand during the third quarter of 2019, compared to ($0.7) million in the second quarter of 2019;
• For the third quarter of 2019, noninterest income was $341.4 million, compared to $269.7 million in the third quarter of 2018, a 26.6% increase;
• For the third quarter of 2019, noninterest expense was $350.1 million, compared to $335.7 million in the third quarter of 2018, a 4.3% increase; and
• Hilltop’s effective tax rate increased to 21.8% during the third quarter of 2019, compared to 17.0% during the same period in 2018.
  • The effective tax rate during the third quarter of 2018 was lower than the statutory rate due to tax planning strategies and a tax benefit recognized on the deductible portion of settlement of litigation.