Hilltop Holdings Inc. Announces Financial Results for Second Quarter 2020

DALLAS–(BUSINESS WIRE)–Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the second quarter of 2020. Hilltop produced income from continuing operations to common stockholders of $97.7 million, or $1.08 per diluted share, for the second quarter of 2020, compared to $60.1 million, or $0.64 per diluted share, for the second quarter of 2019. Including income from discontinued operations related to the insurance segment, income applicable to common stockholders was $128.5 million, or $1.42 per diluted share, for the second quarter of 2020, compared to $57.8 million, or $0.62 per diluted share, for the second quarter of 2019. Hilltop’s financial results from continuing operations for the second quarter of 2020 reflect both a significant increase in mortgage origination segment net gains from sales of loans and other mortgage production income and a significant build in the allowance for credit losses associated with the deterioration of the economic outlook from the first quarter of 2020 attributable to the market disruption and economic uncertainties caused by COVID-19.

Hilltop also announced that its Board of Directors declared a quarterly cash dividend of $0.09 per common share, payable on August 31, 2020, to all common stockholders of record as of the close of business on August 14, 2020.

As previously announced on April 30, 2020, in light of the uncertain outlook for 2020 due to the COVID-19 pandemic, and Hilltop’s commitment to maintain strong capital and liquidity to meet the needs of its customers and communities during this exceptional period of economic uncertainty, Hilltop’s Board of Directors suspended its stock repurchase program. Hilltop’s Board of Directors has the ability to reinstate the share repurchase program at its discretion as circumstances warrant.

The COVID-19 pandemic has negatively 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 COVID-19 on our operational and financial performance for the remainder of 2020 is dependent on certain developments, including, among others, the broader adverse implications of COVID-19 on our customers and clients, potential further disruption and deterioration in the financial services industry, including the mortgage servicing and commercial paper markets, and additional, or extended, federal, state and local government orders and regulations that might be imposed in response to the pandemic, all of which are uncertain.

Jeremy Ford, President and CEO of Hilltop, said, “While these remain very challenging times and there is significant uncertainty about the future impacts from the pandemic, I am very proud of our teammates across Hilltop as they continue to execute and display compassion for our clients and each other. Our results from the second quarter demonstrate the strength and durability of our operating model as the mortgage franchise delivered record pre-tax income of $138 million on $6 billion of mortgage originations, while the securities business grew pre-tax income by 26% to $28 million from strength in the fixed income capital markets and structured finance business lines. While the Bank incurred a pre-tax loss of $17 million, it generated pre-provision net revenue, or PPNR, of $48 million during the quarter driven by solid net interest income and lower operating expenses. The Bank also recognized approximately $66 million of provision expense related to significant deterioration in the economic outlook from the end of the first quarter through June. In addition to exceptional PPNR performance, we were also able to fortify our strong excess capital and liquidity positions during the quarter by executing a subordinated debt offering and closing the sale of National Lloyds.”

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Note: Pre-provision net revenue, or PPNR, is a non-GAAP financial measure which represents pre-tax income (loss) plus provision for credit losses. We believe that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.

Second Quarter 2020 Highlights for Hilltop:

• For the second quarter of 2020, net gains from sales of loans and other mortgage production income within our mortgage origination segment was $295.3 million, compared to $131.2 million in the second quarter of 2019, a 125.1% increase;
  • Mortgage loan origination production volume was $6.1 billion during the second quarter of 2020, compared to $4.0 billion in the second quarter of 2019.
• The provision for credit losses was $66.0 million during the second quarter of 2020, compared to $34.5 million in the first quarter of 2020;
  • This significant increase in the provision for credit losses during the second quarter of 2020 was primarily associated with the increase in the expected lifetime credit losses under CECL on collectively evaluated loans within the portfolio attributable to the continued market disruption and related macroeconomic uncertainties caused by COVID-19.
• Hilltop’s consolidated annualized return on average assets and return on average equity for the second quarter of 2020 were 3.30% and 23.32%, respectively, compared to 1.74% and 11.63%, respectively, for the second quarter of 2019;
• Hilltop’s book value per common share increased to $25.08 at June 30, 2020, compared to $23.71 at March 31, 2020;
• Hilltop’s total assets were $16.9 billion at June 30, 2020 compared to $15.7 billion at March 31, 2020;
  • Included $249.8 million in assets of discontinued operations associated with the insurance segment at March 31, 2020.
• Loans¹, net of allowance for credit losses, increased to $7.3 billion compared to $6.7 billion at March 31, 2020;
  • Included supporting our impacted banking clients through funding of over 2,800 loans totaling approximately $672 million at June 30, 2020 through the Paycheck Protection Program, or PPP.
• Non-performing loans were $68.3 million, or 0.65% of total loans at June 30, 2020, compared to $87.4 million, or 0.89% of total loans, at March 31, 2020;
• As of June 30, 2020, we approved approximately $968 million in COVID-19 related loan modifications;
  • Extent of progression of these loans into non-performing loans during future periods is uncertain.
• Loans held for sale increased by 6.5% from March 31, 2020 to $2.6 billion at June 30, 2020;
• Total deposits were $11.6 billion at June 30, 2020, compared to $9.9 billion at March 31, 2020;
• On May 11, 2020, Hilltop completed the issuance and sale of $50 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes due May 2030 and $150 million aggregate principal amount of 6.125% fixed-to-floating rate subordinated notes due May 2035;
• Hilltop maintained strong capital levels with a Tier 1 Leverage Ratio² of 12.60% and a Common Equity Tier 1 Capital Ratio of 18.46% at June 30, 2020;
  • 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.
• Hilltop’s consolidated net interest margin³ decreased to 2.80% for the second quarter of 2020, compared to 3.41% in the first quarter of 2020;
• For the second quarter of 2020, noninterest income from continuing operations was $468.1 million, compared to $276.7 million in the second quarter of 2019, a 69.2% increase;
• For the second quarter of 2020, noninterest expense from continuing operations was $370.2 million, compared to $304.1 million in the second quarter of 2019, a 21.7% increase; and
• Hilltop’s effective tax rate from continuing operations was 23.3% during the second quarter of 2020, compared to 23.0% during the same period in 2019.

Discontinued Operations

On June 30, 2020, Hilltop completed the sale of its insurance segment, National Lloyds Corporation, for cash proceeds of $154.1 million. Insurance segment results and its assets and liabilities have been presented as discontinued operations. Included within discontinued operations for the second quarter of 2020 is the recognition of a gain associated with this transaction of $32.3 million, net of $5.1 million in transaction costs and subject to post-closing adjustments. The resulting book gain from this sale transaction was not recognized for tax purposes pursuant to the rules under the Internal Revenue code. Income (loss) from discontinued operations, net of income taxes, was $30.8 million, or $0.34 per diluted share, for the second quarter of 2020, compared to ($2.3) million, or ($0.02) per diluted share, for the second quarter of 2019.

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Note: “Consolidated” refers to our consolidated financial position and consolidated results of operations, including discontinued operations and assets and liabilities classified as held for sale.

¹ “Loans” reflect loans held for investment excluding broker-dealer loans, net of allowance for credit losses, of $422.1 million and $505.9 million at June 30, 2020 and March 31, 2020, 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

Contacts

Investor Relations Contact:

Erik Yohe

214-525-4634

eyohe@hilltop-holdings.com

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