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spk08: Hello, everybody, and thank you for your patience. The Hilltop Holdings First Quarter 2022 Earnings Conference call-on webcast is due to begin shortly. Hello everyone and a warm welcome to the Hilltop Holdings first quarter 2022 earnings conference call on webcast. My name is Bethany and I'll be your operator today. If you would like to ask a question after the speaker's prepared remarks, you may do so by pressing star one on your telephone keypad. I will now pass the floor over to Eric Yohe, Executive Vice President at Hilltop Holdings. Eric, over to you.
spk00: Thank you, operator. Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our outlook, business strategy, future plans, financial condition, allowance for credit losses, the impact and potential impacts of COVID-19, or disruptions in the global or national supply chains, stock repurchases and dividends, and impacts of interest rate changes, as well as such other items referenced in the preface of our presentation, are forward-looking statements. These statements are based on management's current expectations concerning future events that by their nature are subject to risk and uncertainties. Our actual results, capital, liquidity, and financial condition may differ materially from these statements due to a variety of factors. including the precautionary statements referenced in our presentation and those included in our most recent annual and quarterly reports filed with the SEC. 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. Additionally, this presentation includes certain non-GAAP measures, including tangible common equity and tangible book value per share. A reconciliation of these measures to the nearest gap measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop-holdings.com. With that, I'll now turn the presentation over to President and CEO Jeremy Ford.
spk01: Thank you, Eric, and good morning. For the first quarter, Hilltop reported net income of $22 million, or $0.28 per diluted share. Return on average assets for the period was 53 basis points. and return on average equity was 3.6%. The strength and stability of Plains Capital Bank carried this quarter's results, as earnings pressures at Prime Lending and Hilltop Securities resulted from a challenging mortgage market and an escalating interest rate environment. Plains Capital Bank generated $47 million of pre-tax income on 14.9 billion of average assets, resulting in a return on average assets of 1%. Average loans at the bank increased $130 million in the quarter, or 8% annualized, as both core commercial loans and retained mortgage balances increased. Our pipeline continues to build and we expect core loan growth, primarily in commercial real estate, to continue across all of our markets. In particular, we saw outside strength in Dallas, Fort Worth, and Austin markets. Competition is elevated, though, as banks seek to deploy excess liquidity from the industry-wide growth in deposits. So we remain focused on adhering to our long-held underwriting standards that we believe have allowed Plains Capital Bank to prosper through numerous credit cycles. As such, credit quality improved, with non-performing loans declining by $7 million, or 13%, from the fourth quarter. and the net charge-off ratio to average bank loans was only two basis points. Total average deposits increased by $340 million, or 3% quarter over quarter, and by $1.4 billion, or 12% year over year, largely due to growth from existing customers. Average deposit balances remain elevated compared to pre-pandemic levels, up 56% from year-end 2019, but slightly lower than during the peak of 2021. A slight decline in period-end deposit balances primarily resulted from select customers deploying excess liquidity outside of the bank, as well as a decline in CD balances. Moving to prime lending. This quarter, we experienced a swift transition in the mortgage market, stemming from a rapid rise in mortgage rates, record low housing inventory, and affordability challenges from mounting home price appreciations. The heightened interest rates have dramatically reduced refinance volumes and sparked significant pricing margin compression as lenders seek to optimize fulfillment capacity that was built up to accommodate the record volumes in 2020 and 2021. While origination mortgage volumes were down, revenues were further challenged relative to similar historical periods due to the quick and substantial decline in gain on sale margins. Prime lending originated $3.8 billion in volume, with a gain on sale margin of loans sold to third parties of 321 basis points. Prime lending origination volume declined 39% from the prior year, which is in line with the industry volume projections of 37%. Over the same period, refinancing volume as a percent of total volume declined from 53% to 27%. We expect pressure on the mortgage business to persist. as interest rates rise and the market remains fiercely competitive for volume. Therefore, our team continues to recruit strong purchase-oriented loan originators while remaining laser focused on our fixed expense base. In the coming months, we will closely monitor industry trends and adjust for excess capacity from lower business activity. It has been a challenging start to the year for Hilltop Securities, particularly in our structured finance and fixed income businesses. With the expectation of higher interest rates in the near term, municipal and mortgage capital markets volumes were at historic lows and were responsible for almost the entire $26 million shortfall in income compared to prior year. Given the current volatile trading environment, Hilltop Securities is carrying lower inventory levels and we expect to maintain this prudent approach until the markets recover. Despite the challenging trading environment, The firm has seen positive momentum from the public finance services and the retail wealth management businesses as we continue to recruit top talent and grow our customer base. We also expect sweep deposit revenue from our clearing and retail businesses to benefit from the rising rate environment. Moving to page four. Hilltop maintains strong capital levels with a common equity tier one capital ratio of 21.3% at period end. and our tangible book value per share increased by 6% from prior year to 27.47. Compared to prior quarter, our tangible book value per share did decline by 90 cents, or 3%, as a result of $120 million pre-tax increase in net unrealized losses within our available for sale investment portfolio. That was caused by increases in interest rates since securities were purchased. Excluding the impact of the change in AOCI, our tangible book value per share would have been relatively flat quarter over quarter. During the quarter, Hilltop paid dividends to shareholders of $11.8 million. In summary, the start of the year for the bank was very positive. We grew core bank loans while improving asset quality. However, our fee income businesses were depressed during the quarter from the sharp spike in interest rates and fixed income market volatility. We expect market volatility to persist with the uncertain anticipation of significant interest rate increases in the short term, which will have varying impacts to our businesses. We believe our fixed income capital markets business will improve with a more stabilized interest rate outlook. The expected interest rate increases should be accretive to our bank, but punitive to our mortgage-centric platforms. Moving forward, we remain confident in the value of our diversified business model, the strength of our employee base, our ability to endure industry cycles and compete with our established businesses. With that, I will now turn the presentation over to Will to discuss the financials.
spk07: Thank you, Jeremy. I'll start on page five. As Jeremy discussed, for the first quarter of 2022, Hilltop reported consolidated income attributable to common stockholders of $22 million, equating to 28 cents for diluted share. Before we move further into the deck, I'd like to provide additional context around Jeremy's comments related to our AFS securities portfolio and a transfer that we executed during the first quarter. As Jeremy noted, the AFS portfolio accumulated an additional $120 million in pre-tax unrealized losses during the first quarter. This unrealized loss is reflected in AOCI and does not directly impact the income statement. During the first quarter, management made the determination it was appropriate to move $782 million of cost basis, equating the $709 million of book value AFS securities into our held to maturity portfolio. This move reduces the potential impact of higher rates on Hilltop's book equity and tangible book value metrics going forward. Quarter end, the AFS portfolio equated at $1.46 billion, which is a sufficient size and allows ample flexibility in managing the bank's investment portfolio over time. Management will continue to review the AFS and HTM securities mix at Hilltop and may make additional transfers in the future. I'm now turning to page six. During the first quarter, we saw improvements across the loan portfolio as NPLs declined from the fourth quarter of 2021. This improvement was somewhat offset by a slower U.S. economic outlook since the last quarter, as provided in the Moody's March S7 scenario. Allowance for credit losses of $91 million yields an ACL to total bank loans HFI ratio of 1.17% as of the first quarter. Of note, we continue to believe that the allowance for credit losses could be volatile and that changes in the allowance will be driven by net loan growth in the portfolio, credit migration trends, and changes to the macroeconomic outlook over time. Further, we have seen certain industry-provided economic forecasts begin to reflect an increased likelihood of economic recession in future periods, some starting as early as the first quarter of 2023. We will continue to monitor the current economic environment as well as a broad set of economic forecasts during the second quarter to determine what impacts any updated outlook may have on the allowance for credit losses in future periods. Turning to page 7. Net interest income in the first quarter equated to $100 million, including $1.8 million of PPP fees and interest and $2.5 million of purchase accounting accretion. Net interest margin declined versus the fourth quarter of 2021 by 8 basis points to 236 basis points, driven primarily by the impacts of continued growth and excess cash levels and lower yields on loans HFI which were somewhat impacted by lower accretion and PPP-related fees and interest income. The growth in excess cash levels in the first quarter were driven by the decline in loans held for sale and mortgage warehouse lending, which were both impacted by lower overall mortgage market volumes. Further, the competitive pressures in commercial banking remains intense across every market as customers look to secure lower long-term fixed-rate funding to avoid the impacts of rising rates over time. On a positive note, during the first quarter, commercial loan originations, including credit renewals, had an average book yield of 3.93%, which moved higher by 15 basis points versus the fourth quarter levels. Turning to page 8. In the chart, we highlight the asset sensitivity of Hilltop, assuming parallel and instantaneous rate shocks, which represents an asset-sensitive position of approximately 11% in the up 100 basis point scenario. As we evaluate asset sensitivity and interest rate risk, we assess a number of potential scenarios. Of note, if we shift the analysis from an instantaneous parallel shift to a gradual increase over the course of the next 12 months, the F-100 basis point asset sensitivity falls to approximately 5%. Further, in this scenario, each 25 basis point increase positively impacts net interest income by approximately $5 million. As a result of the 25 basis point increase in the federal funds rate during the first quarter, approximately $900 million of loans moved to or above their floor levels, and we expect that these loans will begin to reprice to higher rate levels over the coming months. Lastly, for 2022, we expect that the impact of PPP related fees and interest, which were approximately $22 million in 2021, and purchase loan accretion could decline by 25 to 30 million versus the 2021 levels. Moving to page nine. Total non-interest income for the first quarter of 2022 equated to $216 million. First quarter mortgage-related income and fees decreased by $167 million versus the first quarter of 21 driven by the evolving environment in mortgage banking, which moved quickly to a more purchase-focused market and reflected a more traditional cyclical pattern than we saw during the prior year period. The shift in the first quarter was abrupt, and it was earlier and deeper than we previously expected. Versus the prior year quarter, purchase mortgage volumes decreased by $150 million, or 5%. and refinance volumes declined much more substantially, decreasing by 2.3 billion, or 69%. During the first quarter of 2022, gain on sale margins declined sharply to 312 basis points, down 76 basis points versus the same period in the prior year. Margins were negatively impacted by pricing reductions across the markets, as well as a customer preference to pay more in origination fees through rate buy-downs versus paying the prevailing interest rate in the market. We expect full year average margins to be under pressure during 2022 as mortgage volumes normalize from the historically high level seen over the last two years and the competition for that lower volume drives tighter margins. Currently, we expect this full year average gain on sale margins for loans sold to third parties will average between 270 and 300 basis points contingent on market conditions. Other income decreased by $35 million driven by primarily declines in structured finance lock volumes, which declined by $823 million, or 43%, and a challenging trading environment in fixed income services, whereby revenues declined by $15 million versus the prior year period. It is important to recognize that both fixed income services and structured finance businesses can be volatile from period to period as they are impacted by interest rates, overall market liquidity, volatility, and production trends. Turning to page 10, non-interest expenses decreased from the same period in the prior year by $80 million to $286 million. The decline in expenses versus the prior year was driven by decreases in variable compensation of approximately 70 and prime lending, which was linked to substantially lower fee revenue generation in the quarter compared to the prior year period. Additionally, Non-compensation variable expenses, particularly mortgage production-related expenses, declined as volumes declined versus the prior year. Professional services and consultancy-related expenses is a place where we've focused on reducing expense over the last few years, and the year-over-year benefits of these efforts is noted as expenses dropped $3.5 million from the prior year. Looking forward for 2022, we expect that inflation will impact compensation. occupancy and software expenses, resulting in elevated fixed costs within the businesses. To help mitigate some of these headwinds, we remain focused on continuous improvement, leveraging the investments we've made over the last few years to aggressively manage increased productivity across our front, middle and back offices. While these inflationary pressures do exist, we are continuing to further streamline our businesses and accelerate the adoption of our digital capabilities to support client acquisition and overall business productivity, starting at page 11. Average HFI loans equated to $7.8 billion in the first quarter, increasing by approximately $200 million from the prior year levels. Continuing the trends from the second half of 2021, from the first quarter, commercial lending, in particular commercial real estate, remained solid as both closed production and our forward pipelines were robust. While commercial loan growth has improved over the last few quarters, we expect the full year average commercial loan growth during 2022 will be in the 2% to 5% range as competition remains very intense for newly funded loans. In the first quarter of 2022, Prime Lending locked approximately $100 million of loans to be delivered to Plains Capital over the coming months. These loans had an average yield of 376 basis points. an average FICO and LTVs of 774 and 62% respectively. Lastly, given our current liquidity position, we expect to continue to retain one to four family mortgages originated at prime lending at a pace of between 25 and 50 million per month throughout 2022. While this target retention is lower than in prior periods, we believe it represents the appropriate balance of asset liability positioning, net interest income growth support, and liquidity consumption for 2022. Turning to page 12. During the first quarter, Hilltop recorded net charge-offs of $300,000. Further, in the graph in the upper right, we show the ongoing progress made in reducing NPAs as overall credit quality continues to improve across the portfolio. As is shown in the graph in the bottom right of the page, the allowance for credit losses coverage at the bank ended the first quarter of 2022 at 1.25%, including both mortgage warehouse lending as well as PPP loans. We continue to believe that both mortgage warehouse lending as well as PPP loans will maintain lower loss content over time. Excluding mortgage warehouse and PPP loans, the bank's ACL to total bank loans HFI ratio equates to 1.31%. I'm now turning to page 13. First quarter average total deposits are approximately $12.7 billion and have increased by $1.3 billion, or 11%, versus the first quarter of 2021. In addition to solid growth in deposits year-over-year, interest-bearing deposit yields have continued to drift lower with the first quarter average cost of 21 basis points. While we've seen solid improvement in deposit costs over the last two years, We do expect to see deposit costs begin to rise later in 2022 if the Federal Reserve adjusts the Fed funds rate higher during the year. While deposit levels remain elevated, it should be noted that we remain focused on growing our client base and deepening wallet share through our Treasury products and services. These efforts were successful in 2021, and we expect that they will continue to accelerate into 2022. Turning to page 14. Given the challenges during the first quarter, particularly within the trading and markets businesses, we are updating our 2022 outlook to reflect current market conditions, expectations for future performance, and actions we'll be taking to support profitable growth over the coming quarters. It should be noted that we expect ongoing volatility in the capital markets and that the overall economy and that this volatility could materially impact our results and change our expectations in the future. As such, We will provide updated outlook, where appropriate, during our quarterly calls. Operator, that concludes our prepared comments, and we'll turn the call back to you for the Q&A section of the call.
spk08: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad now. Our first question comes from Michael Young at Truist. Michael, please go ahead.
spk04: Hey, good morning. Morning, Michael. Jeremy, I wanted to actually start just on capital. Obviously, the mortgage boom over the last two years has built up a good bit of excess capital. I know back in 2020, you guys did a modified Dutch auction. I think you announced it around 0.8 to 0.9 of tangible book value and completed it around tangible book value. The stock's kind of back to tangible book value today. So just wanted to get your updated thoughts on capital returns and allocation at this point.
spk01: Sure. So we have about a billion dollars of excess capital, and we've authorized $100 million share repurchase for the year. As well, we increased our dividend to $0.60. And in the first quarter, we paid that dividend, and we did not repurchase any shares. And, you know, I think that we'll look to repurchase shares in the open market going forward throughout the year under our authorization. as well and we'll be keeping mindful of the market and if there's anything else to do.
spk04: Okay. And my second question was just in the securities business, just trying to think through impacts to TBA and municipal originations as we move forward throughout the year kind of in this higher rate environment. And, you know, were there any one-time, you know, kind of fair value hits to that TBA pipeline?
spk07: Go ahead on that. This is Will. You know, during the quarter, you know, we had some unrealized marks during the quarter, as you often do when rates move against. Those were approximately $8 million. But, again, again, that's the unrealized portion. I think as we look forward, obviously, rate volatility and, in particular, kind of substantial swings in rates during is what puts pressure both on that pipeline as well as the prime lending pipeline for that matter. And so as we continue to monitor, we maintain a robust hedge position. But again, during the quarter, it was challenging from a revenue perspective. I think to answer your question on volumes, the HFA business, as we've noted, is really a first-time homebuyer program. Obviously, the inflation and the acceleration of home appreciation across the country is putting pressure there. Higher interest rates also putting pressure on payments. So we remain focused on helping our customers and clients be competitive in that space. However, it is the affordability challenges that are present are really putting pressure on overall volumes in the structured finance business in particular.
spk01: Mm-hmm.
spk04: And then just any thoughts on municipal originations, you know, at these higher interest rates, does that tend to kind of slow that volume, or are you guys still seeing, you know, continuation of volume there?
spk01: We're seeing national issuance was down 16% in the first quarter. That had more impact on our underwriting business. Our municipal advisory business is still doing well. And, you know, I'd say that we, you know, our – Our view is less robust than it was six months ago. However, we are constructive for the need for infrastructure spending, and particularly Texas being our core market.
spk04: Okay, thanks. That's all from me. Thank you.
spk08: The next question comes from Brad Millsaps at Piper Sandler. Brad, please go ahead.
spk05: Hey, good morning. Thanks for taking my questions. I wanted to maybe start with some of the NII guidance. You're looking for NII growth of 3% to 6% this year. I was just curious, does that include any planned deployment of any of your, you know, kind of excess liquidity either into, you know, growing the bond portfolio additionally? I just wanted to get a sense of what are the key drivers behind that NII growth guidance you've got out there as it relates to the cash?
spk07: Yeah, Brad, I'll take that. There's a number of drivers going into the NII outlook. First, we're certainly monitoring the rate floors. We talked about we had about $900 million with the first rate movement that moved to or above their floors. You'll start to see some loan repricing there. As we noted, the going on yields have moved modestly higher versus the fourth quarter. And then from a deployment perspective, we're going to try to retain $25 to $50 million of mortgage loans. We believe that will continue to accelerate the usage of the excess liquidity that we've got. But we also are growing the investment portfolio at $25 to $50 million a month as well. So we're, I'd say, rebalancing the portfolio out of cash into securities and loans. We are also seeing some yield improvements. And then the last part of that is You know, we've noted that our model beta, deposit beta through the cycles, approximately 50%. Obviously, with the first couple rate moves, we expect to be on the lower end of that for this year. And then as the rate increases continue, we'll expect to have to pass through more of that to clients over time. But it's our expectation that we'll be slower to move deposit rates and should start to see NIM expansion in the second half of the year.
spk05: Great. That's helpful. And the $5 million that you disclosed for each 25 basis points, would it be likely that that might be higher in the beginning and then start to come down as you go through each rate hike? And is that for rates only? That's just on a static balance sheet, correct?
spk07: That is a static balance sheet, and you're correct. So it it would be larger, that's the average, that's the average of 25 basis points moved over a 12 month forward view. So the first few will be kind of more accretive and then they'll start to moderate as we start to pass deposit rate through.
spk05: Okay, great. And then, I really appreciate that. And my follow up question would just be on the expense side of things. If my math's right, it looks like non-variable expenses were actually down year over year in the first quarter, and even to get to the low end of your 2% to 5% guidance, it would imply a pretty big step up in fixed expenses. I know you mentioned inflationary pressure, but again, it just seems like a pretty big step up from where you were in the first quarter. Can you maybe offer any more color or guidance there on maybe what the big drivers would be based on where you're starting from here in the first quarter?
spk07: One thing is timing. Obviously, in the first quarter, you know, we generally pass through a marriage cost of living adjustment. That occurs later in the first quarter, so that wasn't kind of fully in the first quarter. And then, you know, we'll expect, as those contracts reset, I mean, again, we're looking at this on a contract-by-contract basis on a from an occupancy perspective, from a software perspective. So we're modeling it at a pretty granular level, and some of that started to accelerate late first quarter or second quarter. But I would say, and to the point, given where the revenue is and has been and where we're guiding here to, it should be noted, I mean, we're taking substantial steps to evaluate all of our businesses to ensure we're maximizing productivity, right-sizing the business to the capacity required given the current production levels. And so we're working hard on managing expenses in the face of a challenging revenue environment, certainly in our fee businesses.
spk05: Okay, great. Thank you, guys. I'll hop back in the queue.
spk06: Thanks. Thank you.
spk08: The next question comes from Michael Rose at Raymond James. Michael, please go ahead.
spk02: Hey, good morning. Thanks for taking my questions. Just following up on some of Brad's questions on expenses. You know, you guided the broker-dealer fees down 5% to 15%. Can you just kind of imply what that would mean for the expense base, if any changes at that? Hilltop Securities and just any sort of commentary on the pre-tax margin rebounding from these levels.
spk07: Thanks. Yeah, I think from a broker-dealer in particular perspective, I mean, we would generally speaking and I'd say more globally across Hilltop expect for an NIR revenue reduction, we'd expect to recoup somewhere between 25 and 30 cents on the dollar from a variable compensation perspective. That's what it's historically been, so we would expect that. And I think we're going to be – I don't think we want to guide toward a pre-tax rebound. I think what we would say here today is the markets need to become more stable. There needs to be more clarity. from both the Fed and maybe some of the other geopolitical issues that are out there creating uncertainty, at which point we think the businesses we have, fixed income and other markets-related businesses, will stabilize, at which point we'll start to move back to more normalized margins. But as we sit here today, it's difficult to predict exactly when that stabilization occurs.
spk01: Okay, that's very helpful. Sure. Michael, just to add on that, the first quarter was the worst quarter for the bond market since 1980, where the U.S. aggregate index down, I think it was 8%. And so clearly that had an impact on our fixed income capital markets. And I think that as the rate outlook starts to stabilize, those businesses will heal. And we've got a good business there with good people, and then they'll get it back on track. And then Similarly, just to kind of clarify a little bit more on the structured finance business, you know, obviously, as Will mentioned earlier, you know, these are down payment assistance borrowers that are really struggling with a lack of inventory and 20% to 25% of institutional cash buyers. And then with the rate environment the way it was in the quarter, the prepayment feature or prepayment protection feature of this collateral didn't yield really the comparative benefits to on the run other product out there. It'll come back into favor for that same reason, but it will go through this episodic cycle.
spk02: That's very helpful, Collar. I appreciate it. Just moving on to kind of the charge off outlook, you know, I noticed that that didn't change, but you know, you guys are running really low, you know, not accruals, you know, everything's kind of trending in the right direction. It's not changing that. Is that just more function of just, you know, the cautious outlook and your conservatism or, you know, could you outperform that? Cause it seems like other banks are kind of bringing down their, their charge up expectations, if only modestly. Thanks.
spk07: Yeah, I think the way we evaluate it, it's early in the year. We obviously came out with a first quarter that was very strong from a credit quality perspective. As we noted, we continue to see the portfolio improve But there can always be items that kind of pop up. So as we go through the year further, if the economy continues to hold together and we don't get any shocks outside, we would expect to outperform it. Or certainly the opportunity there would be to outperform the guidance year, but we maintain it certainly given the earliness of the year.
spk02: Perfect. And maybe just one last one for me. So I noticed the the amount you're going to add in one to four family is down a little bit. I assume that's just given lower production, but any sort of thoughts around just bringing it down a smidge? Thanks.
spk07: So we evaluate kind of from an asset liability perspective, how much fixed rate loan exposure we want, as well as what kind of mix we want. We're at approximately a billion dollars of those one to four family mortgage loans on the balance sheet today. We are seeing improved commercial lending trends. We've had loan growth on the commercial side for a couple of quarters sequentially now. And so we're just balancing between the one to four family loans, the securities portfolio, and commercial loan growth to try to ensure we remain balanced from an asset liability perspective going forward. And so that's really the gist of the adjustment.
spk02: Yep, makes total sense. All right, thanks for taking my questions, guys. Thank you.
spk08: The next question comes from Matt Olney at Stevens. Matt, please go ahead.
spk03: Hey, thanks for the morning, guys. I think you characterized that the mortgage business in 1Q that the slowdown was more abrupt and deeper than you've been expecting. And I know you've been through a number of mortgage cycles. I'm curious, any observations you see in the current cycle as compared to past cycles? And specifically with respect to your gate on sale margin guidance, I think you said 270 to 300 basis points. I don't think we've seen levels that low in previous cycles. So just trying to appreciate the current cycle versus past cycles and any comments you have there. Thanks.
spk01: I think, like, just I'll say topically, and Will, you chime in here, but It's very different than other cycles in the fact that you've had so much overcapacity that's been built up over the last two years, and now interest rates have gone up and refinancing has just evaporated. And then the supply challenges of home inventory and now affordability, home price appreciation, and cash buyers really make it a challenging environment, and it's putting a lot more pressure on margins. And, you know, our team at Prime Lending would say that historically when you had cycles like this, you could manufacture some incremental volume through sales campaigns or other kind of pricing strategies. But it's really hard to find right now.
spk07: Will? I think I agree with all that. And I think the next, you know, the outlook for 270 to 300 really reflects, you know, to Jeremy's point, a pricing environment that – I won't say it's unprecedented, but we certainly haven't seen it. But I think it's the abrupt nature of the change in overall refinance and rate increases has caused the competitive set to really pull the price lever very, very hard. And they've done that. And we expect to continue to see it. So, you know, we're guiding, obviously, we had a 321 basis point gain on sale for loans sold to third parties. The guidance is for, again, loans sold to third parties, so the equivalent there to $270, $300. We expect to see a pretty substantive migration of that here in the middle of the year, certainly during the normal selling season, just because, again, we've got, as Jeremy mentioned, a lot of capacity to work through and a lot of competition out there that was built up during really outsized growth in the market for the prior two-year period. So it wasn't It wasn't a normal cycle where you had kind of an accelerating housing market that then turned into a slower housing market. It was, you know, a housing and refinance boom that now has kind of normalized within a series of quarters.
spk08: Our next question comes from Brady Gailey at KBW. Brady, please go ahead.
spk06: Hey, thanks. Good morning, guys. Morning. Just wanted to circle back on the buyback question. You know, I mean, 100 million is only about 4% of the company. It's only about 10% of your excess capital. And, you know, with the stock now under changeable book value, Could you get more aggressive than that this year beyond the $100 million of buyback?
spk01: I'm sorry. We had a technical issue. To answer your question, Brady, yes, we could. Last year, we increased our authorization throughout the year, so we could do that. We'll continue to evaluate it in the open markets. And, you know, right now we have a guidance to go or we have a limit to go up to $100 million of open market share repurchases. And, you know, I think that we'll be, at this point, you know, trying to work towards that.
spk06: All right. And then as I look at consolidated fee income and as I look at the other fine item, I mean, that tends to be a pretty – volatile, like last year it was $41 million, then $28 million, then $42, then $17. This quarter it dropped to $7 million. What was the driver of the drop off in that other fee income line?
spk07: Yeah, that's where structured finance and other kind of fixed income trading gains and losses resides. Okay.
spk06: All right. And then maybe just a bigger picture question for Hilltop. I mean, you did a 50 basis point ROA this quarter. I look at your ROA a year ago, it was 280 basis points. It tends to be such a volatile earnings stream quarter to quarter. Longer term, is there a desire or an effort to reduce the volatility and your performance, or is that just a function of K of, you know, Hey, it is what it is. We got a broker dealer and a mortgage companies that are going to be volatile. I know in the past we've talked about using the girls desire to really grow the bank, um, and have the bank see outsized growth, which would help, you know, smooth earnings, but just, you know, are there any, is there a desire and a plan to kind of help reduce the volatility of earnings here longer term?
spk01: You know, I think that we, as we've talked about, that, you know, our desire is to increase the assets of the bank so that it would stabilize the overall earnings, that these fee-based businesses we've had, they've simply outgrown that, and that's a good thing for them individually and for us collectively. So, yeah, I think the strategy would be, As we've said, we think we have a synergistic and durable business model where the bank, the greater the assets that could be, the better for all. And obviously the mortgage business is very synergistic to that. And as well, Hilltop Securities is very synergistic and provides sweep deposits that are core funding for the bank.
spk06: And maybe on that, topic I know you know to grow the bank notably from here it's kind of a tough environment to do that although you guys are in great markets here in Texas what about M&A what about inorganic growth as a means to really grow the banking side of your business maybe just an update on kind of how you're thinking about Bank M&A at this point well we're still interested in pursuing Bank M&A
spk01: And right now, we're really seeking the right partner that's a good franchise-enhancing deal, you know, probably in our market, obviously. And we track several banks and have an interest in those, about $1 to $5 billion in assets, and something where we can put a meaningful amount of cash in the consideration.
spk06: Okay. Great. Thank you, guys. Thank you. Thank you.
spk08: We have a follow-up question from Matt Olney at Stevens. Matt, please go ahead.
spk03: Yeah, thanks, guys. Just following up on Brady's M&A question, I guess I'm trying to appreciate kind of where we are in the cycle and how Hilltop could play it out. I guess specifically, given the strong balance sheet at Hilltop with the liquidity and the capital, is this a time where you think the bank can be playing more offense with respect to transactions, if some of the competitors are not playing offense as much, or is it still a time to play defense, given some of the macro uncertainties out there? Thanks.
spk01: Well, I guess our view is that if we focus on the right transactions, we're probably not going to be in this environment distressed. type opportunities, but opportunities that fit with our bank and that we can grow together that, uh, yeah, I think that it would be a time for us to, uh, to, to do a transaction. And I think that we're a good buyer in this environment because we have all this excess capital. We've got a lot of insider ownership and, uh, we've got a strong bank and then a liquid stock that's at a discount to, you know, a lot of peers.
spk03: Okay. Thank you.
spk08: We have no further questions. So this concludes the Hilltop Holdings first quarter 2022 earnings conference call and webcast. Thank you very much for joining. You may now disconnect your lines.
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