Hilltop Holdings Inc. (HTH)

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Hilltop Holdings Inc. (HTH)

Q4 2013 Results Earnings Conference Call

March 04, 2014, 09:00 AM ET

Executives

Isabell Novakov - Investor Relations

Jeremy B. Ford - President and Chief Executive Officer

Darren E. Parmenter - Senior Vice President of Finance, Hilltop Holdings and Chief Operating Officer, National Lloyds Corporation

Alan B. White - Vice Chairman, Hilltop Holdings and Chairman & Chief Executive Officer, PlainsCapital Corporation

John Martin - Executive Vice President and Chief Financial Officer of PlainsCapital

Analysts

Brett Rabatin - Sterne, Agee & Leach, Inc.

Matt Olney - Stephens, Inc.

Presentation

Operator

Good morning, and welcome to the Hilltop Holdings Q4, 2013 and 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Ms. Isabell Novakov, Senior VP Investor Relations. Please go ahead.

Isabell Novakov

Good morning. Joining me on the call this morning are Jeremy Ford, President and CEO of Hilltop Holdings, Alan White, CEO of PlainsCapital Corporation, Darren Parmenter, Senior Vice President of Finance, Hilltop Holdings, and John Martin, CFO of PlainsCapital Corporation.

The information in this presentation is subject to the forward-looking statements found on page two. Please take a moment to review those. And with that I would like to hand the call over to Jeremy Ford.

Jeremy B. Ford

Thank you, Isabell and good morning. Moving forward to slide three, for the fourth quarter 2013 net income to Hilltop Holdings was $29.5 million or $0.34 per share. Net income for Q3, 2013 was revised up to $38.2 million or $0.43 per share due to an adjustment to the preliminary bargain purchase gain associated with the First National Bank, Edinburg transaction.

For the full year 2013 our net income was $121 million or $1.40 per share. Our return on average assets for the quarter was 11% from 13% in Q3, 2013. Our return on average assets was 1.34%. PlainsCapital Corp, subsidiaries reported pretax income of $38.5 million while National Lloyds Corporation had pretax income of $17.5 million, which included $3.7 of gain from the call of Hilltop's senior exchangeable notes.

The total asset for Hilltop decreased to $8.9 billion from $9.1 billion in September. And our total stockholder's equity increased by $106 million to $1.3 billion at December of 2013. The call of our senior exchangeable notes was completed in Q4, 2013 resulting in tangible book value accretion as well as the issuance of 6.2 million shares of Hilltop common stock. Hilltop remains well capitalized with 12.8% Tier 1 leverage ratio, moving forward.

This page shows financial highlights for the full year 2013 as well as by quarter. I'll hit on the items not previously mentioned. Our book value per share at year-end was $13.27. Our net interest margin built through the year from 4.35% to 4.52%. Our gross loans grew from $3.2 billion in Q1 to $4.5 billion in Q4 and our deposits grew from $4.8 billion to $6.7 billion in Q4, both as a result of the FNB acquisition as well as organic growth. Our NPLs to total loans stood at 51 basis points at year-end.

Moving forward; this slide is intended to give you a financial update of the First National Bank transaction. I'll describe these three boxes first. The top left box shows the bargain purchase gain at closing that was initially reported in September 30th and revised at 12/31. The top right box shows the income impact of First National Bank's transaction to Hilltop Holdings and the bottom right box shows balances of FNB at September and at December.

Of note we revised our bargain purchase gain from $3.3 million to $12.6 million in the quarter, primarily due to an increase in net assets acquired as well as a fair value adjustment to the OREO. FNB contributed $29 million of pretax in 2013 and $12 million in the fourth quarter. There was a $300 million decline in the FNB deposits as a result of our planned run off of non-core deposits.

And with that I will hand it over to Darren to talk about the consolidated results.

Darren E. Parmenter

Thank you, Jeremy. First I’ll speak about net interest margin. Net interest margin expanded by six basis points to 4.52% in the quarter as a result of higher loan yields as well as lower cost of interest bearing deposits. Yield on earning assets of 5% driven by loan yields of 6.4%.

Cost of deposits continues to expand to 27 basis points. Note that our cost of fund was impacted by the $2 million unamortized issuance cost related to call-ins on the senior exchangeable notes. Significant reduction of wholesale funding and excess liquidity at PlainsCapital Bank as a result of the First National Bank transaction contributed to the net interest margin expansion in the quarter. Improvement in funding mix and yield on earning assets over 2013 resulted in a full year net interest margin of 4.47%.

For the full year 2013 the tax equivalent net interest margin for Hilltop Holdings was 103 basis points greater due to purchase accounting. Accretion of discount on loan was $69.3 million, amortization of premium on acquired securities of $5.7 million and amortization of premium on acquired time deposits of $5.1 million.

With that I would like to move to the next slide and speak about non-interest income. Non-interest income was $182.5 million in the fourth quarter 2013, down 15.2% from the third quarter. Revenues from the mortgage segment declined $29.3 million from the third quarter to $98.1 million in the fourth quarter 2013, representing 54% of the total non-interest income.

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