For the second quarter 2019, Hilltop reported net income of $57.8 million or $0.62 per diluted share, which represents a 77% increase compared with the $0.35 reported during the same quarter last year.
Additionally, Hilltop delivered a return on average assets of 1.74% and a return on average equity of 11.6%.
Average loans held for investment excluding broker-dealer loans grew by $740 million or 13% compared to the prior second quarter.
The large drivers were our Bank of River Oaks acquisition in Q3 2018 and our national warehouse lending business, which increases average balance by $225 million or 81% from second quarter 2018.
Also, the structured finance business at HilltopSecurities yielded a net revenue increase of $31 million compared to prior year from optimal market conditions and the strategic alignment with the capital market business.
Through the first six months of 2019, we have returned $40 million to our stockholders in dividends and share repurchases.
Under our Board-authorized share repurchase program, $25 million remains available through January 2020.
For the second quarter, nonperforming assets were $53 million, down slightly linked quarter and down $32 million compared to the second quarter 2018.
The bank had a healthy quarter with pre-tax income increasing by $13.5 million or 41% from prior year.
This increase was partially driven by a reduction in noninterest expense of $7.3 million attributed to a wire fraud and indemnification asset amortization in Q2 2018 as well as operational efficiency within the business.
Additionally, higher yields on higher loans balances delivered net interest income growth of $5.5 million despite lower accretion during the period.
In the second quarter, the bank closed two underperforming branches resulting in 62 full service branches.
Mortgage pre-tax income of $21.8 million for the quarter, an improvement of $8.4 million from Q2 2018, was the result of disciplined pricing and expense management despite a 4% decline in origination volume.
Multiple initiatives implemented during the second half of 2018 resulted in $6 million lower fixed cost and $4.3 million higher origination and closing costs fees.
Gain-on-sale margins increased by 15 basis points from Q2 2018, though remained stable over the trailing 12 months.
The broker-dealer reported a very strong quarter with a pre-tax margin of 18.9% on increased net revenues of 35% versus prior year.
Results were relatively stable compared to prior year in our insurance business as we reported a pre-tax loss of $2.8 million for the quarter with a combined ratio of 113%.
As Jeremy discussed, for the second quarter of 2019, Hilltop reported $57.8 million of income attributable to common stockholders equating to $0.62 per diluted share.
During the second quarter, Hilltop reported a $700,000 recovery and provision for loan losses.
In the quarter, the bank recaptured $6.2 million of allowance for loan loss, principally related to ongoing improvement in the oil and gas portfolio and a significant recovery from a previously classified oil and gas loan.
The second quarter provision includes approximately $3 million of net charge-offs or 18 basis points of average bank loans on an annualized basis.
During the second quarter, revenue-related purchase accounting accretion was $6.4 million and expenses were $2 million, resulting in a net purchase accounting pre-tax impact of $4.4 million for the quarter.
Related to the purchase loan accretion, as the purchase portfolio balances continued to decline, we expect scheduled interest income related to purchase loan accretion to average between $4 million and $6 million per quarter for the remainder of 2019.
Hilltop's capital position remains strong with a period in Common Equity Tier 1 ratio of 16.32% and a Tier 1 leverage ratio of 13%.
Net interest income in the second quarter equated to $108 million, including $6.4 million of purchased loan accretion.
Net interest income increased $3 million or 3% versus the same quarter in the prior year.
Net interest margin equated to 3.49% in the second quarter and included 23 basis points of purchase accounting accretion.
The prepurchase accounting taxable equivalent net interest margin equated to 3.26%, which improved by eight basis points versus the same period in the prior year.
On a linked-quarter basis, taxable equivalent prepurchase accounting net interest margin declined by 12 basis points, resulting from lower yields on loans held for sale and the six basis point increase in the interest-bearing deposit costs.
Year-to-date, the 10-year treasury yield has declined by approximately 65 basis points, which has a direct impact on Hilltop's loans held-for-sale yields, albeit on a lag basis.
Overall, the average yield on loans held for sale during the second quarter dropped by 32 basis points to 460 basis points, putting pressure on net interest margin during the quarter.
Hilltop's cumulative beta for interest-bearing deposits in December of 2015 has been approximately 46%, remaining below our through-the-cycle model ranges of 50% to 60%.
Therefore, we are maintaining our full year average prepurchase accounting net interest margin outlook of 3.25% plus or minus three basis points.
Quarterly average gross earning assets increased by $268 million versus the same period in the prior year.
Growth was impacted by lower average loans held for sale, which declined by $282 million versus the prior year period.
Total noninterest income for the second quarter of 2019 equated to $313 million.
Second quarter mortgage-related income and fees increased by $2.8 million versus the second quarter 2018.
During the second quarter of 2019, the competitive environment in mortgage banking remained intense as Hilltop's mortgage origination volumes declined by $147 million or 4% versus the same period in the prior year.
While mortgage volumes were challenged, gain-on-sale margins remained relatively stable during the second quarter at 333 basis points.
With the recent decline in the primary mortgage rate, the business experienced improvement in the refinance market as refinance volumes grew by 28% versus the prior year.
Other income increased by $35 million, driven primarily by improvements in sales and trading activities in both capital markets and structured finance services at HilltopSecurities.
Favorable market conditions resulted in a 25% increase in structured finance mortgage-backed security volumes and improved secondary spreads.
Noninterest expenses increased in the same period in the prior year by $5 million to $344 million.
The growth in expenses versus the prior year were driven by an increase in variable compensation of $18 million at HilltopSecurities and PrimeLending.
During the second quarter, Hilltop incurred $2 million in costs related to the ongoing core system enhancements, and we do expect that these related expenses will increase for the remainder of 2019.
Total average HFI loans grew by 11% versus the second quarter of 2018.
Based on current production trends, seasonal and scheduled paydowns, the current competitive environment and our focus on high-quality conservative underwriting, we continue to expect the full year average HFI loans will grow between 4% and 6% in 2019.
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As previously noted and as shown on this chart on the top right of the slide, Hilltop's businesses have maintained solid credit quality as nonperforming assets have declined $32.5 million from the same period in the prior year.
The allowance for loan loss to HFI loans ratio equates to 83 basis points at the end of the second quarter of 2019 and the decline from the first quarter of 2019 reflects the aforementioned allowance recapture.
It is important to note that we maintain approximately $90 million of remaining discounts across the purchase loan pools, and these discounts provide additional coverage against future losses.
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Average total deposits are approximately $8.3 billion and have increased by $483 million versus the second quarter of 2018.
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During the second quarter of 2019, PlainsCapital Bank continued to demonstrate solid improvement in profitability, generating approximately $47 million of pre-tax income during the quarter.
The quarter's results reflect the benefits of the growth in the Houston market, the affirmation allowance recaptured, which equated to $6.2 million and improvement in the efficiency ratio versus the prior year period of 10.6%.
Of note, the second quarter of 2018 included $4 million of expense related to the previously reported wire fraud and $2 million loss share related expenses.
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PrimeLending generated a pre-tax profit of $22 million in the second quarter of 2019 driven by the efficiency efforts that the leadership team at PrimeLending executed during the third and fourth quarters of 2018 and has continued in the 2019.
While origination volumes declined by 4% versus the same period in the prior year, the combination of back-office efficiencies and branch performance management have yielded significant reduction in operating expenses, which declined by approximately $6 million versus the same period in the prior year.
Mortgage origination fees have increased from the same period in the prior year by 12 basis points, which yielded a small increase in fees versus the prior year even as origination volumes declined.
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HilltopSecurities delivered a pre-tax profit of $22 million for the second quarter of 2019, driven by solid execution in the structured finance and capital markets businesses, which have benefited from both our ongoing investments in structuring, sales and distribution and improved market conditions.
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National Lloyds recorded a $3 million pre-tax loss for the quarter, which reflects seasonal increases in storm activity and client-related losses.
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Summary:
For the second quarter 2019, Hilltop reported net income of $57.8 million or $0.62 per diluted share, which represents a 77% increase compared with the $0.35 reported during the same quarter last year.
As Jeremy discussed, for the second quarter of 2019, Hilltop reported $57.8 million of income attributable to common stockholders equating to $0.62 per diluted share.