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.
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.
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.
This portfolio, which at the end of June 2020 was $968 million, is now down to $130 million as of March 31.
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.
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.
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.
For HilltopSecurities, they had a good quarter with pre-tax income of $18 million.
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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.
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.
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.
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%.
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.
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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.
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.
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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.
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Total average HFI loans grew by 5% versus the first quarter of 2020.
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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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%.
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.
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.
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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.
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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.
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.
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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.
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Summary:
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.
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.