Hilltop Holdings Inc. Announces Financial Results for Fourth Quarter and Full Year 2014
Hilltop Holdings Inc. (NYSE:HTH) (“Hilltop”) today announced financial results for the fourth quarter and full year 2014. Hilltop produced income to common stockholders of $31.7 million, or $0.35 per diluted share, for the fourth quarter of 2014, compared to $29.5 million, or $0.34 per diluted share, for the fourth quarter of 2013. Income to common stockholders for the full year 2014 was $105.9 million, or $1.17 per diluted share, compared to $121.0 million, or $1.40 per diluted share, for the full year 2013. Hilltop’s annualized return on average assets and return on average equity for the fourth quarter of 2014 were 1.42% and 8.55%, respectively, compared to 1.31% and 9.31% for the fourth quarter of 2013, respectively. The return on average assets and return on average equity for the full year 2014 were 1.26% and 8.01%, respectively, compared to 1.66% and 10.48% for the full year 2013, respectively.
“2014 was another strong and exciting year for Hilltop’s shareholders, employees and customers as every business segment reported profitable results during the year. PlainsCapital Bank continues to grow its legacy franchise, while rationalizing the platform acquired in the FNB Transaction. PrimeLending has successfully increased its market share in an environment of declining industry origination volumes. National Lloyds achieved its most profitable year since it was founded over 50 years ago. The recent investment grade rating Hilltop received from Fitch reflects the strength of our business segments,” said Jeremy Ford, CEO of Hilltop.
“With the closing of the SWS Transaction, we are excited about the prospects of building a dominant broker-dealer through the combination of Southwest Securities and First Southwest. We have a committed and capable leadership team working towards an effective and efficient integration. We look forward to entering 2015 with momentum and remain focused on delivering strong long-term results to our shareholders.”
Fourth Quarter 2014 Highlights for Hilltop:
- Total assets remained flat at $9.2 billion at December 31, 2014 compared to September 30, 2014;
- Total stockholders’ equity increased $37.5 million from September 30, 2014 to $1.5 billion at December 31, 2014;
- Non-covered loans1 held for investment, net of allowance for loan losses, increased 4.1% to $3.9 billion, and covered loans1, net of allowance for loan losses, decreased 14.6% to $638.0 million from September 30, 2014 to December 31, 2014;
- Loans held for sale increased 2.9% to $1.3 billion from September 30, 2014 to December 31, 2014;
- Total deposits increased $133.6 million from September 30, 2014 to $6.4 billion at December 31, 2014;
- Hilltop was well-capitalized with a Tier 1 Leverage Ratio2 of 14.17% and Total Capital Ratio of 19.69% at December 31, 2014; and
- Hilltop had approximately $146.0 million of freely usable cash (although $78.2 million was used for SWS Group, Inc. (“SWS”) transaction consideration on January 1, 2015), as well as excess capital at its subsidiaries, at December 31, 2014.
1 Loan portfolio includes “covered 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 fourth quarter 2014 excluding goodwill and intangible assets.
For the fourth quarter of 2014, consolidated net interest income was $91.5 million compared with $88.6 million in the fourth quarter of 2013, a 3.3% increase. The consolidated taxable equivalent net interest margin was 4.72% for the fourth quarter of 2014, a 20 basis point increase from 4.52% in the fourth quarter of 2013. During the fourth quarter of 2014, the consolidated taxable equivalent net interest margin was impacted by accretion of discount on loans of $21.6 million, amortization of premium on acquired securities of $1.2 million and amortization of premium on acquired time deposits of $0.1 million.
For the fourth quarter of 2014, noninterest income was $213.8 million compared with $182.5 million in the fourth quarter of 2013, a 17.2% increase. The improvement was primarily driven by higher income related to mortgage origination volumes, as well as increased fees and commissions generated in our broker-dealer segment. Net gains from sale of loans, other mortgage production income and mortgage loan origination fees increased by $14.5 million from the fourth quarter of 2013 to $112.7 million in the fourth quarter of 2014. Mortgage loan originations totaled $2.7 billion in the fourth quarter of 2014, versus $2.3 billion in the fourth quarter of 2013, positively impacted by a decline in interest rates. Net premiums earned were relatively flat at $41.6 million in the fourth quarter of 2014 compared to $41.5 million in the fourth quarter of 2013, a result of higher rates, offset by a managed reduction in policies in force. For the fourth quarter of 2014, noninterest income in our broker-dealer segment was $34.2 million compared to $22.8 million in the fourth quarter of 2013, a 50.0% increase. Most of the increase was attributable to fees earned from advising its public finance clients on debt offerings due to lower interest rates and an improving economy.
For the fourth quarter of 2014, noninterest expense was $246.8 million compared with $219.8 million in the fourth quarter of 2013, a 12.3% increase. Employees’ compensation and benefits increased $21.0 million, or 18.7%, to $133.4 million in the fourth quarter of 2014, primarily due to higher variable compensation tied to higher mortgage origination volume and increased noninterest income in our broker-dealer segment. Loss and loss adjustment expenses (“LAE”) increased to $18.2 million in the fourth quarter of 2014 from $16.8 million in the fourth quarter of 2013. As a result, the loss and LAE ratio during the fourth quarter of 2014 increased by 3.3 percentage points to 43.7% compared to 40.4% in the fourth quarter of 2013. Occupancy and equipment expense declined by $1.5 million from the fourth quarter of 2013 to $24.3 million in the fourth quarter of 2014 and other noninterest expense increased to $58.9 million in the fourth quarter of 2014 from $52.7 million in the fourth quarter of 2013. Amortization of identifiable intangibles from purchase accounting was $2.5 million for the fourth quarter of 2014. During the full year 2014, noninterest expense included $1.4 million of transaction costs associated with the SWS transaction compared to $0.1 million for the full year 2013.
The fourth quarter of 2014 provision for loan losses of $4.1 million largely relates to purchased credit impaired (“PCI”) loans and was $1.9 million greater than the fourth quarter of 2013 provision for loan losses of $2.2 million. The allowance for non-covered loan losses was $37.0 million, or 0.94% of total non-covered loans at December 31, 2014. Non-covered, non-performing assets at December 31, 2014 were $23.2 million, or 0.25% of total assets, compared to $27.0 million, or 0.29% of total assets, at September 30, 2014.
SWS Group Transaction
On October 2, 2014, Hilltop exercised its warrant to purchase SWS common stock in full, acquiring 8,695,652 shares of SWS common stock at an exercise price of $5.75 per share (“SWS Warrant”). Pursuant to the terms of the warrant and a credit agreement with SWS, the aggregate exercise price was paid by the automatic elimination of the $50.0 million aggregate principal amount note due to Hilltop under the credit agreement. Following the exercise of the SWS Warrant, Hilltop (i) owned 10,171,039 shares of SWS common stock, representing approximately 21% of the outstanding shares of SWS common stock, and (ii) was no longer a lender under the credit agreement. Hilltop’s election to apply the provisions of the Fair Value Option resulted in Hilltop recording unrealized gains previously associated with its investment in SWS common stock of $7.2 million. For the period from October 3, 2014 through December 31, 2014, the change in fair value of Hilltop’s investment in SWS common stock resulted in a loss of $1.2 million. Accordingly, Hilltop recorded a $6.0 million net gain in other noninterest income during 2014. At December 31, 2014, Hilltop’s investment in SWS common stock is included in other assets within the consolidated balance sheet and is recorded at a fair value of $70.3 million.
On January 1, 2015, Hilltop completed its acquisition of SWS in a stock and cash transaction, whereby SWS merged with and into Hilltop Securities Holdings LLC (“Hilltop Securities”), a wholly owned subsidiary of Hilltop formed for the purpose of facilitating this transaction. SWS’s broker-dealer subsidiaries, Southwest Securities, Inc. (“Southwest Securities”) and SWS Financial Services, Inc. (“SWS Financial”), became subsidiaries of Hilltop Securities. Immediately following the SWS transaction, SWS’s banking subsidiary, Southwest Securities, FSB, was merged into PlainsCapital Bank, an indirect wholly owned subsidiary of Hilltop. As a result of the SWS transaction, each outstanding share of SWS common stock was converted into the right to receive 0.2496 shares of Hilltop common stock and $1.94 in cash, equating to $6.92 per share based on Hilltop’s closing price on December 31, 2014 and resulting in an aggregate purchase price of $349.0 million, consisting of 10.0 million shares of common stock, $78.2 million in cash and $70.3 million associated with Hilltop’s existing investment in SWS common stock.
|Condensed Balance Sheet||December 31,||September 30,||June 30,||March 31,|
|Cash and due from banks||782,473||635,933||673,972||889,950|
|Loans held for sale||1,309,693||1,272,813||1,410,873||887,200|
|Non-covered loans, net of unearned income||3,920,476||3,768,843||3,714,837||3,646,946|
|Allowance for non-covered loan losses||(37,041||)||(39,027||)||(36,431||)||(34,645||)|
|Non-covered loans, net||3,883,435||3,729,816||3,678,406||3,612,301|
|Covered loans, net of allowance for loan losses||638,029||747,514||840,898||909,783|
|Covered other real estate owned||136,945||126,798||142,174||152,310|
|FDIC indemnification asset||130,437||149,788||175,114||188,736|
|Premises and equipment, net||206,991||205,734||201,545||202,155|
|Total Hilltop stockholders’ equity||1,460,452||1,422,975||1,396,442||1,354,497|
|Total liabilities & stockholders’ equity||9,242,416||9,180,402||9,396,448||9,033,432|
|Three Months Ended||Year Ended|
|Condensed Income Statement||December 31,||September 30,||June 30,||March 31,||December 31,|
|Net interest income||91,514||85,760||98,446||85,421||361,141|
|Provision for loan losses||4,125||4,033||5,533||3,242||16,933|
|Net interest income after provision for loan losses||87,389||81,727||92,913||82,179||344,208|
|Income before income taxes||54,416||39,118||44,982||39,650||178,166|
|Income tax expense||20,950||14,010||16,294||14,354||65,608|
|Less: Net income attributable to noncontrolling interest||325||296||177||110||908|
|Income attributable to Hilltop||33,141||24,812||28,511||25,186||111,650|
|Dividends on preferred stock||1,425||1,426||1,426||1,426||5,703|
|Income applicable to Hilltop common stockholders||31,716||23,386||27,085||23,760||105,947|
|Three Months Ended||Year Ended|
|December 31,||September 30,||June 30,||March 31,||December 31,|
|Selected Financial Data||2014||2014||2014||2014||2014|
|Return on average stockholders’ equity||8.55||%||6.51||%||7.99||%||7.65||%||8.01||%|
|Return on average assets||1.42||%||1.03||%||1.24||%||1.14||%||1.26||%|
|Net interest margin (taxable equivalent)||4.72||%||4.38||%||5.18||%||4.62||%||4.74||%|
|Earnings per common share ($):|
|Weighted average shares outstanding (000’s):|
|Book value per share ($)||14.93||14.51||14.22||13.76||14.93|
|Shares outstanding (000’s)||90,182||90,180||90,181||90,178||90,182|
|December 31,||September 30,||June 30,||March 31,|
|Tier 1 capital (to average quarterly assets):|
|Tier 1 capital (to risk-weighted assets):|
|Total capital (to risk-weighted assets):|
|Three Months Ended||Twelve Months Ended|
|December 31, 2014||December 31, 2014|
|Outstanding||Earned or||Yield or||Outstanding||Earned or||Yield or|
|Loans, gross (1)||$||5,602,554||$||88,791||6.25||%||$||5,461,611||$||341,458||6.21||%|
|Investment securities – taxable||1,009,788||6,313||2.49||%||1,072,564||29,206||2.72||%|
|Investment securities – non-taxable (2)||177,487||1,654||3.73||%||182,881||7,028||3.84||%|
|Federal funds sold and securities purchased|
|under agreements to resell||11,579||9||0.31||%||18,120||52||0.29||%|
|Interest-bearing deposits in other|
|Interest-earning assets, gross||7,743,509||99,868||5.09||%||7,663,275||391,116||5.08||%|
|Allowance for loan losses||(45,263||)||(40,516||)|
|Interest-earning assets, net||7,698,246||7,622,759|
|Liabilities and Stockholders’ Equity|
|Notes payable and other borrowings||931,924||3,032||1.28||%||934,031||11,886||1.27||%|
|Total interest-bearing liabilities||5,167,819||7,801||0.60||%||5,424,779||27,628||0.51||%|
|Total liabilities and stockholders’ equity||$||9,007,157||$||8,965,829|
|Net interest income(2)||$||92,067||$||363,488|
|Net interest spread(2)||4.49||%||4.57||%|
|Net interest margin(2)||4.72||%||4.74||%|
|(1)||Average balance includes non-accrual loans.|
|(2)||Annualized taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $0.6 million and $2.3 million for the three months ended December 31, 2014 and full year ended December 31, 2014, respectively.|
Conference Call Information
Hilltop will host a live webcast and conference call at 8:00 AM Central (9:00 AM Eastern), Friday, February 27, 2015. Hilltop President and CEO Jeremy B. Ford and other key management members will discuss 2014 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).
Hilltop is a Dallas-based financial holding company. Through its wholly owned subsidiary, PlainsCapital Corporation, a regional commercial banking franchise, Hilltop has two operating subsidiaries: PlainsCapital Bank and PrimeLending. Under Hilltop Securities, First Southwest, Southwest Securities and SWS Financial provide a full complement of securities brokerage, institutional and investment banking services in addition to clearing services and retail financial advisory. Through Hilltop’s 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 January 1, 2015, Hilltop employed approximately 5,300 people and operated approximately 450 locations in 44 states. Hilltop’s common stock is listed on the New York Stock Exchange under the symbol “HTH.” Find more information at hilltop-holdings.com, plainscapital.com, firstsw.com, swst.com, primelending.com and natlloyds.com.
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 Hilltop’s actual results, performance or achievements to be materially different from any expected future results, performance or achievements. Forward-looking statements speak only as of the date they are made and, except as required by law, Hilltop does not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (i) risks associated with merger and acquisition integration; (ii) our ability to estimate loan losses; (iii) changes in the default rate of our loans; (iv) risks associated with concentration in real estate related loans; (v) our ability to obtain reimbursements for losses on acquired loans under loss-share agreements with the Federal Deposit Insurance Corporation; (vi) changes in general economic, market and business conditions in areas or markets where we compete; (vii) severe catastrophic events in our geographic area; (viii) changes in the interest rate environment; (ix) cost and availability of capital; (x) changes in state and federal laws, regulations or policies affecting one or more of our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act; (xi) our ability to use net operating loss carry forwards to reduce future tax payments; (xii) approval of new, or changes in, accounting policies and practices; (xiii) changes in key management; (xiv) competition in our banking, mortgage origination, broker-dealer and insurance segments from other banks and financial institutions, as well as insurance companies, mortgage bankers, investment banking and financial advisory firms, asset-based non-bank lenders and government agencies; (xv) failure of our insurance segment reinsurers to pay obligations under reinsurance contracts; and (xvi) our ability to use excess cash in an effective manner, including the execution of successful acquisitions. For more information, see the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2014 and other reports filed with the Securities and Exchange Commission.
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