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Text: Please note that the information presented is preliminary and based upon data available at this time.
Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information.
For the first quarter, Hilltop reported net income of $120 million or $1.46 per diluted share, representing an increase from the first quarter 2020 of $71 million or $0.91 per diluted share.
Return on average assets for the period was 2.9% and return on average equity was 20.6%.
These results do include a $5.1 million reversal of provision compared to the first quarter of last year when we had a provision expense of $34.5 million as we introduced CECL and the outlook for credit and the economy look to be deteriorating.
Much of the momentum around mortgages from 2020 continued into this first quarter.
Notwithstanding higher long-term interest rates and refinance volumes slowing, the overall mortgage market remains strong, and our origination business was able to deliver $6.2 billion in volume, a 71% increase from Q1 2020.
Driven by PPP loan balances, the bank's average loans for the first quarter increased 7% from prior year.
And average deposits grew by $2.4 billion or 26% from prior year as well.
While pre-tax margin at the broker-dealer was down slightly from Q1 2020, we did see growth in the structured finance business, which also benefited from a strong mortgage market.
In the public finance business, efforts to improve productivity and growth are showing positive returns as net revenue increased 8% from the first quarter 2020.
During the period, Hilltop returned $50 million to shareholders through dividends and share repurchases.
The $5 million of shares repurchased are part of the $75 million share authorization the Board granted in January.
Liquidity and capital remained very strong, with a Tier 1 leverage ratio of 13% and a common equity Tier 1 capital ratio of 19.6% at quarter end.
We continue to see improvement in economic trends.
And during the quarter, we had payoffs and a return to contractual payments for a large portion of the modified loan portfolio.
This portfolio, which at the end of June 2020 was $968 million, is now down to $130 million as of March 31.
Notably, all COVID-19 modified retail and restaurant loans are now off deferral program.
Our allowance for credit losses as of March 31 totaled $144.5 million or 1.98% of the bank's loan portfolio.
This reflects a reduction in the reserve balance of $4.5 million from the fourth quarter, which was driven primarily by positive shifts in the economic outlook.
While the general economic outlook for the Texas economy has improved, the bank remains cautious and in constant communication with borrowers and certain higher risk segments of our hotel and office portfolios.
These segments were more severely impacted by the pandemic and will take longer to recover.
Moving to Slide 4.
PlainsCapital Bank had a solid quarter with a pre-tax income of $65 million, which includes the aforementioned provision recapture of $5.1 million, also contributing to the increased pre-tax income from Q1 2020 was higher net interest income from lower deposit costs and PPP loan fees and interest income.
Our bankers continue to work with small business customers on PPP program.
and as of March 31, had funded approximately 1,100 loans totaling $178 million as part of the second round, bringing the total PPP loan balance to $492 million at period end.
PrimeLending had another outstanding quarter and generated pre-tax income of $93 million, an increase of $53 million from Q1 2020.
That was driven by both a $2.6 billion increase in origination volume and a gain on sale margin of 388 basis points.
While rates increased toward the end of the quarter and margins tightened, we remain encouraged by the demand for mortgages across the country and by the PrimeLending team that continues to perform exceptionally while actively recruiting quality loan originators.
For HilltopSecurities, they had a good quarter with pre-tax income of $18 million.
The structured finance business had a strong start to the quarter with favorable volumes and spreads, then the sudden rise in interest rates adversely impacted net revenue in March.
Net revenue grew in public finance services compared to prior year from a modest increase in national insurance and recruiting efforts.
The fixed income services and wealth management businesses generated modestly lower net revenues than Q1 2020 levels.
Overall, for Hilltop, this was an excellent quarter and a great start to the year.
We believe our balance sheet is strong and our credit quality is sound.
We are excited about the strategic direction and growth potential of our three businesses, and we are grateful for the talented leadership and dedicated teams we have across Hilltop.
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As Jeremy discussed, for the first quarter of 2021, Hilltop reported consolidated income attributable to common stockholders of $120 million, equating to $1.46 per diluted share.
During the first quarter, revenue related to purchase accounting was $4.9 million and expenses were $1.3 million, resulting in a net purchase accounting pre-tax impact of $3.6 million for the quarter.
In the current period, the purchase accounting expenses largely represent amortization of other intangible assets related to prior acquisitions.
During the first quarter, provision for credit losses reflected a net reversal of $5.1 million and included approximately $600,000 of net recoveries of previously written off credits.
The improvement in the current macroeconomic environment as well as the outlook for continued improvement in key economic metrics positively impacted allowance for credit losses during the quarter.
Hilltop's quarter-end capital ratios remain strong with common equity Tier 1 of 19.63% and Tier 1 leverage ratio of 13.01%.
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Net interest income in the first quarter equated to $106 million, including $7.5 million of previously deferred PPP origination fees and purchase accounting accretion.
Versus the prior year quarter, net interest income decreased by $4.7 million or 4%.
Further, net interest margin declined versus the fourth quarter of 2020 by 2 basis points.
In the current period, net interest margin benefited from the recognition of deferred PPP origination fees, higher yields in stock loan and lower deposit cost.
Offsetting these benefits were lower loan HFI and HFS yields, driven by market pricing and absolute yield levels in the mortgage market.
Further, PCB's excess cash levels held at the Federal Reserve increased by $365 million from the fourth quarter, putting an additional 5 basis points of pressure on net interest margin.
During the quarter, new loan commitments including credit renewals, maintained an average book yield of 4%.
This was stable with the fourth quarter of 2020.
Total interest-bearing deposit costs declined by 8 basis points in the quarter as we continue to lower customer deposit rates and returned broker deposits during the first quarter.
We expect continued consumer CD maturities and additional broker deposit declines in the coming quarters, both of which support a continued steady decline in interest-bearing deposit costs.
Given the current market conditions, we expect net interest income and net interest margin will remain pressured as overall market rates remain low, putting pressure on held for sale and commercial loan yields and that competition could remain aggressive over the coming quarters as we expect new loan demand will remain below historical levels.
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Total noninterest income for the first quarter of 2021 equated to $418 million.
First quarter mortgage-related incoming fees increased by $131 million versus the first quarter of 2020.
During the first quarter of 2021, the environment in mortgage banking remained strong, and our business outperformed our expectations in terms of origination volumes, principally driven by lower mortgage rates which drove improved demand for both refinance and purchase mortgages.
Versus the prior year quarter, purchase mortgage volumes increased by $561 million or 24% and refinance volumes improved substantially, increasing by $2 billion or 156%.
While volumes during the first quarter were strong relative to traditional seasonal trends, gain on sale margins did decline versus the fourth quarter of 2020 as a combination of lower linked-quarter market volumes, principally purchased mortgage volumes, competitive pressures and product mix yielded a gain on sale margin of 388 basis points.
We expect pressures on margin to persist throughout 2021, and we continue to expect full year average margins to move within a range of 360 to 385 basis points contingent on market conditions.
Other income increased by $12 million, driven primarily by improvements in the structured finance business as the prior year period included a $16 million negative unrealized mark-to-market on the credit pipeline.
As we've noted in the past, the structured finance and capital markets businesses can be volatile from period-to-period as they are impacted by interest rates, origination volume trends and overall market liquidity.
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Noninterest expenses increased from the same period in the prior year by $85 million to $367 million.
The growth in expenses versus the prior year were driven by an increase in variable compensation of approximately $63 million at HilltopSecurities and PrimeLending.
This increase in variable compensation was linked to strong fee revenue growth in the quarter compared to the prior year period.
The balance of the increase in compensation and benefits expenses is related to higher payroll taxes, salaries and overtime expenses.
Looking forward, we expect that our revenues will decline from the record levels of 2020, which will put pressure on our efficiency ratio.
That said, we remain focused on continuous improvement, leveraging the investments we've made over the last few years to aggressively manage fixed cost while we continue to further streamline our businesses and accelerate our digital transformation.
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Total average HFI loans grew by 5% versus the first quarter of 2020.
Growth versus the same period of the prior year was driven by growth in PPP loans and higher balances in the mortgage warehouse lending business.
In the period, banking loans, excluding PPP, and mortgage warehouse lending have declined modestly versus the prior year period as commercial loan demand has remained tepid throughout the pandemic.
As we've noted on prior calls, we are planning to retain between $30 million and $50 million per month of consumer mortgage loans originated at PrimeLending to help offset soft demand from our commercial clients.
During the first quarter of 2021, PrimeLending locked approximately $146 million of loans to be retained by PlainsCapital over the coming months.
These loans had an average yield of 287 basis points and an average FICO and LTV of 779 and 61%, respectively.
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First quarter credit trends continue to reflect a slow but steady recovery in the Texas economy as the reopening of businesses continues to provide improved customer cash flows and fewer borrowers on active deferral programs.
As of March 31, we have approximately $130 million of loans on active deferral programs, down from $240 million at December 31.
Further, the allowance for credit losses to end of period loan ratio for the active deferral loans equates to 13.4% at March 31.
As is shown in the graph at the bottom right of the page, the allowance for credit loss coverage, including both mortgage warehouse lending as well as PPP loans at the bank, ended the first quarter at 1.98%.
We continue to believe that both mortgage warehouse lending as well as our PPP loans will maintain lower loss content over time.
Excluding mortgage warehouse and PPP loans, the banks' ACL to end-of-period loans held for investment ratio equated to 2.38%.
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First quarter average total deposits were approximately $11.4 billion and have increased by $2.4 billion or 26% versus the first quarter of 2020.
Throughout the pandemic, we continue to experience abnormally strong deposit flows from our customers, driven by government stimulus efforts and shifting client behaviors as customers remain cautious during these challenging times.
Given our strong liquidity position and balance sheet profile, we are expecting to continue to allow broker deposits to mature and run off.
At 3/31, Hilltop maintained $639 million of broker deposits that have a blended yield of 34 basis points.
Of these broker deposits, $284 million will mature by 6/30 of 2021.
These maturing broker deposits maintain an average yield of 47 basis points.
While deposits remain elevated, it should be noted that we remain focused on growing our client base and deepening wallet share through the sales of our commercial treasury products and services, and we remain focused on driving higher client acquisition efforts.
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During the first quarter of 2021, PlainsCapital Bank generated solid profitability, producing $65 million of pre-tax income during the quarter.
The bank benefited from the reversal of credit losses of $5.2 million and the recognition of $7.5 million in previously deferred PPP origination fees.
During the quarter, the bank's efficiency ratio dropped below 50% as the focus on managing expenses, improving fee income streams through our treasury management sales efforts and working diligently to protect net interest income is proving to be a successful combination.
While we do not expect that the efficiency ratio will remain below 50%, we do expect that the bank's efficiency will operate within a range of 50% to 55% over time.
Moving to Page 13.
PrimeLending generated a pre-tax profit of $93 million for the first quarter of 2021, driven by strong origination volumes that increased from the prior year period by $2.6 billion or 71%.
Further, the purchase percentage of the origination volume was 47% in the first quarter.
While refinance remained above our expectations during the first quarter, we expect that the market will begin to shift toward a more purchase focused marketplace during the last three quarters of 2021.
As noted earlier, gain on sales margins contracted during the first quarter, yet we continue to expect the full year average range of 360 to 385 basis points is appropriate given our outlook on production, product mix and competition.
During the first quarter, PrimeLending closed on a bulk sale of $53 million of MSR value.
Somewhat offsetting the impact of the bulk sale, the business continued to retain servicing at a rate of approximately 50%, which yielded a net MSR value at 3/31 of $142 million, roughly stable with 12/31 levels.
We expect to continue retaining servicing at a rate of 30% to 50% of newly created servicing assets during 2021, subject to market conditions.
And we will be looking to potentially execute additional bulk sales throughout the year if market participation remains robust.
Moving to Page 14.
HilltopSecurities delivered a pre-tax profit and margin of $18 million and 16.2%, respectively in the first quarter of 2021, driven by structured finance and the public finance services businesses.
While activity was strong in the quarter, we have continued to execute on our growth plan, investing in bankers and sales professionals across the business to support additional product delivery, enhance our product offerings and deliver a differentiated solution set to municipalities across the country.
Moving to Page 15.
In 2021, we're focused on remaining nimble as the pandemic evolves to ensure the safety of our teammates and our clients.
Further, our financial priorities for 2021 remains centered on delivering great customer service to our clients, attracting new customers to our franchise, supporting the communities where we serve, maintaining a moderate risk profile and delivering long-term shareholder value.
Given the current uncertainties in the marketplace, we're not providing specific financial guidance but we are continuing to provide commentary as to our most current outlook for 2021 with the understanding that the business environment, including the impact of the pandemic, could remain volatile throughout the year.
That said, we will continue to provide updates during our future quarterly calls.

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hilltop holdings q1 earnings per share $1.46 from continuing operations.
q1 earnings per share $1.46 from continuing operations.

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