Hilltop Widens Margin as Loan Growth Accelerates
Consolidated net interest margin expanded 8 bps QoQ to 3.21% as funding costs declined.
Hilltop Holdings (HTH), the banking and broker-dealer holding company, widened its consolidated net interest margin by 8 bps QoQ and 20 bps YoY to 3.21%. Taxable-equivalent net interest income rose 4.7% YoY to $116.7 million as the net interest spread expanded 41 bps to 2.42%.
Lower funding costs drove the improvement. The average rate on interest-bearing deposits fell 54 bps YoY to 2.37%, outpacing the 13-bps decline in the earning-asset yield to 5.26%. The banking segment’s NIM increased 4 bps QoQ and 26 bps YoY to 3.42%, though the sequential gain slowed from 9 bps in the first quarter.
Loan growth added momentum to the banking business. Period-end gross loans rose $239 million, or 2.8% QoQ, to $8.67 billion, accelerating from roughly 1.5% growth in the first quarter. Average loans held for investment increased 5.2% YoY to $8.49 billion. Total deposits were essentially flat QoQ at $10.51 billion, while noninterest-bearing balances declined 3.0% and accounted for about 26.1% of deposits.
The broker-dealer produced $124.0 million of net revenue, up 6.8% QoQ and 13.1% YoY, as investment-banking, advisory and administrative fees increased 19.7% sequentially to $44.2 million. Its pre-tax margin narrowed to 10.0% from 12.7%, with compensation consuming 62.0% of revenue. Consolidated noninterest income rose 3.8% YoY to $200.0 million, while noninterest expense increased 2.1% to $266.7 million.
Hilltop returned about $59 million to shareholders during the quarter, including $47.0 million of repurchases. It raised its quarterly dividend 10% to $0.22 a share and expanded its buyback authorization by $75 million to $200 million. The company ended the quarter with an 18.34% CET1 ratio and a 12.73% Tier 1 leverage ratio.
Credit costs shifted to a $1.0 million reversal from a $1.8 million provision in the first quarter as an improved economic outlook and portfolio changes outweighed higher specific reserves. Net charge-offs declined to $3.2 million from $4.3 million QoQ, while non-accrual loans improved to 0.57% of loans from 0.66%. The allowance fell to $84.9 million from $89.0 million.
The banking segment’s efficiency ratio improved 50 bps QoQ to 55.0%, and its return on average assets rose to 1.28% from 1.17%. Faster loan growth and lower deposit costs supported the quarter’s margin expansion, while the decline in noninterest-bearing deposits left the funding mix as the key counterweight heading into the second half.