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spk00: Good day everyone and welcome to the Hilltop Holdings second quarter 2024 earnings conference call and webcast. At this time all participants are in a listen only mode. You will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2. Please note this call is being recorded and it will be sending by should you need any assistance. It is now my pleasure to turn the conference over to Eric Yui. Please go ahead.
spk07: 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, credit risk, and trends in credit, allowance for credit losses, liquidity and sources of funding, funding costs, the impact and potential impacts of inflation, stock repurchases, dividends, and impact 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 Manchin'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 the preface of 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. Reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop.com. With that, I will now turn the presentation over to Hilltop President and CEO, Jeremy Ford.
spk06: Thank you, Eric, and good morning. For the second quarter, Hilltop reported net income of approximately $20 million, or 31 cents per diluted share. Return on average assets for the period was 0.6%, and return on average equity was 3.8%. Despite persistently high interest rates and an inverted yield curve, all three business segments posted profitable pre-tax operating results. Additionally, our continued emphasis on controlling funding and operating costs led to a quarter-over-quarter improvement in consolidated net interest margin and pre-provision net revenue. During the quarter, Plains Capital Bank generated $33 million of pre-tax income on $12.7 billion of assets, representing a return on average assets of 0.8%. Average loans at the bank rose by $44 million in the quarter, primarily due to an increase in mortgage warehouse lending. However, commercial lending continues to face pressure from elevated interest rates and robust competition in our primary lending markets. Our bank will maintain a prudent approach and uphold our lending standards, which we believe could restrict loan growth in the near term. Our average deposit balance declined 2% during the quarter, primarily due to the intentional runoff of $150 million in broker deposits. Excluding this decline in broker deposits, we did see an increase in our average interest-bearing deposits for the second straight quarter. Results in the quarter do include a provision for credit losses of $11 million, which is primarily attributable to specific reserves on two relationships that Will is going to discuss in further detail during his prepared remarks. We are proud of the 10 basis point expansion in the bank's net interest margin, from the first quarter to 3.1%, and we are encouraged by the trending of funding costs given the current rate environment. Overall, the bank performed well from a pre-provision net revenue perspective. Moving to prime lending. We were pleased to see the positive pre-tax results from prime lending during the quarter. Higher origination volumes during the normal buying season were encouraging. as was a gain on sale to third parties rate of 233 basis points, which was 12 basis points higher than in Q1. The cost-cutting measures discussed during previous quarterly reports have continued to benefit the business. Non-variable compensation and segment operating costs declined by $11 million compared to the second quarter of 2023. These were difficult but necessary changes within the business. and they will serve prime lending well as we build a stronger franchise for the future. Looking forward, we believe the next few quarters will remain challenging to prime lending's profitability as origination volumes flow in their normal seasonal trends through the end of the year. In the second quarter, Hilltop Securities generated pre-tax income of $7 million on net revenues of $104 million, or a pre-tax margin of 7%. Speaking to the business lines at Hilltop Securities, public finance services experienced a 3% increase in net revenues compared to last year. Revenues from municipal advisory fees increased by 24% on higher national issuance volumes, while the underwriting revenues declined by 54% from lower high yield underwriting opportunities during the period. Structured finance net revenues declined by $4.5 million from the second quarter of 2023 as origination volumes were depressed in the period. Lower activity levels in housing were driven by the continued shortage of affordable home supply and higher mortgage rates. Looking forward to the second half of the year, we anticipate TBA lock volumes to increase given the underlying dynamics of certain state housing clients renewing down payment assistance programs. In wealth management, net revenues declined by $2.4 million compared to last year's first quarter as balances in our FDIC suite program have declined. And our fixed income business remains pressured as the shape of the yield curve continues to act as a headwind on the business. Fixed income services saw revenue decline by $5.4 million compared to last year. Overall, Hilltop Securities saw positive performance in public finance services, while net revenues decreased in the other business lines. This highlights the firm's diverse suite of offerings to clients and ability to capitalize on opportunities as the market presents them. Moving to page four. Hilltop maintains robust capital levels with a common equity tier one capital ratio of 19.5%. Additionally, our tangible book value per share increased from year end 2023 by $0.28 to $28.63. During the period, we returned $21 million to shareholders with $11 million in dividends and $10 million in share repurchases. Thank you. Now I'll turn it over to Will to discuss our financials in more detail.
spk01: Thank you, Jeremy. I'll start on page five. As Jeremy noted, for the second quarter of 2024, Hilltop reported consolidated income attributable to common stockholders of $20.3 million, equating to 31 cents per diluted share. The quarter's results included a year-over-year decline in net interest income of 12%, which was only modestly offset by growth in non-interest revenue and a decline in non-interest expenses. Further, Hilltop did experience a net negative migration in credit quality during the period, which impacted the allowance and provision expense during the quarter. I'm moving to page six to review the allowance for credit losses in more detail. Hilltop's allowance for credit losses increased during the quarter by $11 million to $115 million. As is noted in the graph, specific reserves increased in the period by $7.9 million This increase was largely driven by the downgrades of two credits in our auto lending subsector of C&I to non-accrual. In both instances, the borrowers have experienced idiosyncratic issues in their businesses that have exacerbated their situations, but have also been materially negatively impacted by higher interest rates and lower used car values over the last 12 to 18 months. Migration of these two credits to the total allowance for loan loss in the period of approximately $8 million. Currently, our loan workout team is engaging with these clients in an effort to secure additional assets from the guarantors and put in place forbearance agreements to potentially minimize future losses related to these relationships. For additional reference materials regarding our auto lending portfolio, we have provided a slide on page 21 of this presentation that outlines the size of this portfolio, including recent trends, and the allowance coverage maintained on this portfolio as of June 30th. In addition to the specific reserves, negative migration in the collectively assessed portfolio increased the allowance for credit losses by $3.8 million. The negative migration impacts were driven by two multifamily loans and one office property in the portfolio. These properties have either not stabilized in terms of rental absorption or, upon stabilization, are not meeting key cash flow covenants. As we have in the most recent quarters, we have included in the appendix a summary of our CRE portfolio on page 20 of this presentation. As we've noted in the past, we continue to monitor the entire portfolio closely, focusing on areas that we believe may pose future risk to the bank. That said, we do expect that the ongoing cash flow challenges facing existing clients as well as new projects driven by higher interest rates and ongoing inflation could lead to further credit migration over time. As has been evident since the adoption of CECL, ACL can be volatile as it is impacted by economic assumptions as well as changes in the mix and makeup of the credit portfolio. We continue to believe that the allowance for credit losses could be volatile and that future 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. Given the current uncertainties regarding inflation, interest rates, the future outlook for GDP growth, and unemployment volatility could be heightened over the coming quarters. Turning to page seven. Net interest income in the second quarter equated to $104 million, including $2 million of purchase accounting accretion. Versus the prior year second quarter, net interest income decreased by $15 million or 12%, driven primarily by higher yields on deposits and declining earning assets. During the second quarter, net interest margin increased versus the first quarter of 2024 by five basis points to 290 basis points. The improvement in NIM was largely driven by the return of higher cost broker deposits and was somewhat offset by the impact of lower cash levels at the bank. Our current rate outlook includes one rate decrease, which we have forecast in December of 2024. Based on this rate scenario, we expect that NIM levels will moderate at current levels, potentially drifting higher with additional rate reductions over time. Turning to page eight. In the chart, we highlight the approximately $6.5 billion of available liquidity sources the Hilltop maintained as of June 30th. While we consider the Federal Reserve's discount window to be a source of liquidity, we do not plan to leverage that program under our internal liquidity modeling efforts. As such, it's noted below our other collateralized borrowing sources. Overall, collateralized liquidity sources remain very robust. and are moving towards what we would deem more normal levels after the shocks, which drove liquidity much higher during the COVID era. This is highlighted by the declining Fed deposit levels maintained on the balance sheet. As we've noted in past calls, we expect that this source of liquidity will be maintained at a level between $300 and $750 million over time. Right into page nine. Second quarter average total deposits are approximately $10.4 billion and a decline by approximately $845 million or 7% versus the second quarter of 2023. As we've noted in the past, we expected to reduce deposits from our broker dealer and return any maturing broker deposits that were brought on out of an abundance of caution when we saw certain banks were having liquidity issues last year. During the last 12 months, we've reduced broker-dealer sweep deposits by an average of $769 million and broker deposits by an average of $341 million. Given the magnitude of these changes, we are pleased with the growth in our non-broker-dealer and non-broker deposits over the past year, which approximates $280 million. On a linked quarter ending balance basis, deposits declined in the second quarter by $510 million, the result of the return of $151 million of broker deposits, normal outflows related to taxes and other distributions, and additional client migrations in the treasuries and other off-balance sheet sweet products. As a result of our ongoing pricing efforts, interest-bearing deposit costs remained largely stable, increasing one basis point from the first quarter levels to 359 basis points during the second quarter. It is our expectation that interest-bearing deposit costs remain relatively stable at these levels but could move modestly higher driven by ongoing migration activity from our existing clients. Further, we remain focused on balancing our competitive position with our long-term customer relationships while we continue to focus on prudent management of net interest income over time. However, The current environment remains competitive, and we expect that the intensity of competition for deposits will continue even after the Federal Reserve begins reducing short-term interest rates. Turning to page 10. Total non-interest income for the second quarter of 2024 equated to $193 million. Versus the same period in the prior year, mortgage revenues remained relatively stable as modestly lower origination volumes were offset by improved gain-on-sale margins. While we believe revenues and production from the mortgage segment have stabilized at a lower level, we also feel it remains important to note the ongoing challenges in mortgage banking, whereby a combination of higher interest rates, lower home affordability, limited housing supply, and the ongoing overcapacity in terms of mortgage originators remains restrictive to the market and continues to push back a recovery in margins and production volumes in our mortgage segment. Other key non-interest income line items net to a small reduction versus the same period in the prior levels and reflect a lower revenue and production from structured finance as lock volumes and secondary gains decline versus the same period prior year, coupled with lower activity and training gains in fixed income services. These declines were largely offset by growth in our retail and clearing services businesses. As we've noted in the past, It's important to recognize that both the fixed income services and structured finance businesses at Hilltop Securities can be volatile from period to period as they're impacted by interest rates, overall market liquidity, volatility, and production trends. I'm turning to page 11. Non-interest expenses decreased from the same period in the prior year by $11 million to $256.5 million. The decrease in expenses versus the prior year second quarter was driven by decreases in expenses other than variable compensation, largely at prime lending, whereby fixed costs declined by $14.4 million to $43 million in the second quarter. This reduction largely reflects the hard work that our mortgage team has done to reposition the business for the current environment, and we believe that these levels provide us with significant support for future growth and scalability. Looking forward, We expect the expenses other than variable compensation will remain relatively stable at current levels as we remain diligently focused on prudent growth of revenue producers while continuing to gain efficiencies across our middle and back office functions. Moving to page 12. Second quarter average HFI loans equated to $7.9 billion. On a period ending basis, HFI loans grew versus the first quarter of 2024 by $111 million driven largely by growth in mortgage warehouse lending business, which experienced growth of $82 million. In addition, the bank did grow its CRE lending business by $19 million in the second quarter. We expect loan growth to be challenged in the second half of the year as commercial clients remain cautious and new transactions require higher levels of equity investment before our loan facilities are accessed. Currently, We are expecting full-year average loans to remain consistent with 2023 levels, excluding mortgage warehouse lending and any retained mortgages from prime lending. Turning to Phase 13. Starting in the upper right chart, NPA levels have increased from the first quarter of 2024 by $39 million to $109 million. This increase includes the negative migration of the two auto note finance customers that I referenced earlier in my comments. The impact to NPAs from these two clients is approximately $65 million. Of note, on our prior call, we discussed the CRE loan that we had moved to held for sale during the first quarter and was being offered for sale through a prominent loan auction site. We were successful in the liquidation of this loan during the second quarter and therefore approximately $32 million was removed from the NPA balances as of June 30th. In addition, upon the final disposition of this loan, we recorded an aggregate net loss of approximately $3 million, $1.6 million of which was recorded in provision during the first quarter, and an additional $1.4 million loss that was recorded as a net valuation adjustment to loans held for sale during the second quarter. It is important to note that our actual net charge-offs remain low, with this quarter's net losses totaling less than $100,000. While we're disappointed with the net migrations in the NPAs this quarter, We will remain diligent as we manage our portfolio and assess new credit opportunities in the future. As is shown on the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended the second quarter at 1.47%, including mortgage warehouse lending. Moving to page 14. As we move into the third quarter of 2024, there continues to be a lot of uncertainty in the market regarding interest rates, inflation, and the overall health of the economy. We are pleased with the work that our team has delivered to position our company for times like these, and our teammates across our franchise remain focused 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. As is noted in the table, our current outlook for 2024 reflects our current assessment of the economy and the markets where we participate. As the market changes and we adjust our business to respond, we will provide updates to our outlook on future quarterly calls. Operator, that concludes our prepared comments. We'll turn the call back to you for the Q&A section of the call.
spk00: And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press the star and 1 on your telephone keypad. And we'll take our first question from Steven Skoudin with Piper Sandler. Please go ahead. Your line is open.
spk03: Yeah, good morning. Thanks, everyone. I guess, and apologies, I missed some of the prepared remarks here, but around the shift in the loan growth guidance, can you talk a little bit more about, why you think that might be a little bit weaker than last quarter in the guide. I mean, it seemed like this quarter's growth was pretty strong, and seemingly this guide would imply kind of downward kind of a decline in loans for the rest of the year. So I'm just kind of curious what, you know, what in particular might be driving that, any paydowns and elevated paydowns or anything you expect.
spk01: Will, you know, I think, you know, as I highlighted in my comments, we, the link period growth was largely driven by our mortgage warehouse lending business, which made up 85% of the overall growth. And so as a result of that, that's seasonal. Obviously, the second quarter is principally the bulge period for that business, no different than we see it at prime lending. And so we expect that to, through the balance of the year, move lower as it seasonally would and as we would expect, because we don't see kind of a an impetus at this point for the mortgage business to break what have been historical seasonal trends with the third, late third and fourth quarters being softer than the primary buying season, which is, you know, second quarter and early third quarter. So that's the principal driver. On the commercial side, while our pipelines are certainly up on a linked quarter basis, they're down year on year. And again, I think as we've noted previously from a lending perspective, the current structures with the current yields and pricing that's required require our customers and investors to put in additional equity in the transactions. And it's simply taking them longer to burn through that and then access our overall notes. So our view is we remain constructive on Texas as an overall market from an economic perspective, certainly relative to the national economy. But we also recognize that both structure as well as some cautiousness around the economy are going to continue to put pressure on reducing overall loan growth.
spk03: Got it. Okay. Helpful. And then I guess from a capital priority perspective, can you guys talk about what would be the most likely path for some of the excess capital that you have? I mean, obviously you bought back a little bit of stock each of the last two quarters, but the stock's moved appreciably higher since then. So just kind of curious if that changes. The priorities and then if any kind of updates on M&A conversations as a whole.
spk06: Yeah, we don't have any real change in priorities at this point. And, you know, I thought we did, we've done well year to date by returning money to shareholders through dividends and share repurchases. And so, and we'll be, you know, still in tune to the M&A market. It really hasn't been that active for the last two years.
spk01: I don't think I was going to add is, as we think about capital and liquidity, we do have, as we've noted in all of our documents, about $150 million of senior debt coming due in the first quarter of next year, and then another $50 million of debt that's callable. So we'll be evaluating capital and liquidity priorities kind of each quarter actively based on
spk03: where the market is pricing wise but also uh with an eye towards um with an eye toward those those debt redemptions next year okay great that's helpful will and then i guess just lastly around those um you know like you said jeremy has not been acting on the m a front and you know obviously with the market kind of ripping the last month or so everybody feels a little bit better but do you think we could see any sort of more distressed or failed in your markets that might allow you to be more opportunistic, or what's kind of your view for how that may transpire if you have one?
spk06: Well, I think that, you know, a lot of the kind of stress that's been put on with the interest rates, the deposit costs, and liquidity seems to be working itself out. And, you know, only kind of distress that would arise after that could be, you know, credit. But overall, you know, I think the Texas economy and, you know, the banking system is fairly strong right now. So, I don't, there's not, you know, a lot of immediate stress in the market.
spk03: Got it. Makes a lot of sense. Okay. Thanks, guys, for the time, and I appreciate it. Yeah. Thank you.
spk00: Next question comes from Woody Lee with KBW. Please go ahead.
spk04: Hey, good morning, guys. Morning. Looks like non-interest bearing deposits were down a little bit in the quarter. Just any color you could give on what you saw on the deposit front during the quarter? Was there any seasonality behind that?
spk01: Yeah, so we – well, I mean, I think what we've seen, you know, as a trajectory matter is that customers who have excess cash are looking to find places they can put that money to work in interest-bearing accounts. So we've seen a lot of customers move dollars into our money market products, into our suite products and the like. So some of that certainly exists. The – Seasonally for Q2, though, it is not uncommon for us to see between tax payments and other distributions, whether that be customer dividends or otherwise, it is not uncommon to see a couple hundred million dollars move out of non-interest bearing in the period. There's certainly a seasonal impact given the tax season and other kind of normal distributions, but I would say the prevailing trend that is customers continue to search for higher yielding and safe products, but I'd say readily accessible products as they look at, I'd say, net operating funds is still alive and well, and customers continue to do that every day. we believe non-interest bearing deposits likely drift lower over the next six to 12 months if rates remain elevated and the Fed doesn't completely reverse course.
spk04: Yeah, that's helpful. And then just historically, I've sort of thought of the core bank as asset sensitive, but it sounds like just given some of those dynamics, you all think you all might be a little bit more liability sensitive now?
spk01: Well, you know, we said this in the past. We had peaked out, you know, about 18 months ago at 12% as a sensitive on a shock basis, on a shock balance sheet. basis point move. That's moved to about 5%. We expect to move that into the 2% to 4% level. So we're still on a shock basis. Static balance sheet are modestly asset sensitive. But to your point, we've worked very diligently and positioned the balance sheet to be what we would deem to be more neutral. So as rates decline, we'd like to think we've done a lot of things to help protect or harbor our NII over time. And we'll continue to do some of that. But again, we won't move likely to a full liability sensitive position. I'd expect you to see us move to a little closer to neutral and then hold from there.
spk04: Got it. And then lastly, if I look at the non-owner-occupied office portfolio that you include in the appendix, it looks like the ACL on those loans was down in the quarter. Just any color on sort of what drove that decrease?
spk01: Yeah, we had a few credits, but one significant one that was – Hadn't stabilized as of 3-31, got stabilized as of 6-30 and started and kind of reached cash flow. We're monitoring these credits pretty closely. So had reached stabilization and started to achieve and exceed their overall covenant level. So that allowed them to be upgraded. That's really the nature of that change.
spk04: All right. Thanks for taking my questions.
spk05: Thank you.
spk00: Our next question comes from Michael Rose with Raymond James. Please go ahead.
spk05: Hey, good morning, everyone. Thanks for taking my questions. Hey, Will, I just wanted to get some color around the guidance for deposits on a full-year basis to be down 0% to 3%. I guess that's excluding the brokered and the sweep deposits, but it just seems like it's a fairly big lift. um just based on where total deposits were um at the quarter so can you provide some color as to you know the the pieces the the the core book and then what you'd expect on on the sweep to kind of get to that zero three percent how we should maybe be thinking about you know average deposits holistically um all together thanks yeah so i i think um
spk01: I think if we think about, if you think about SWEEP, which has been averaging about $750 million for the last couple of quarters, we expect that's going to remain consistent. So, I don't see a lot of activity there. We have exited, as we noted, virtually all of our broker deposits. So, the last $150, $151 million was returned in the second quarter. And so, as we look at deposit growth, the positive trends we're seeing are in our money market products. Some of our other interest-bearing products, CDs, have been stabled slightly up. And so, you know, as we think about NIV, as we are evaluating, we're not seeing customer loss. what we're continuing to see is migration to and from. And so as we think about the overall growth profile of the business, we are seeing, as I mentioned, we've had about $280 million of growth year on year in that non-brokered uh non-broker dealer uh area and we continue to expect to see that type of growth in our core um you know which excludes those two items uh for the balance of the year but again um it's going to continue to be challenged only by by i'd say non-interest bearing and and the potential rundown in that space okay yeah it's just because like if i kind of look at where the second quarter
spk05: average deposits were for the first half of the year versus the full year I mean you're about 600 million less and it just seems to get to down just zero to three percent it's a it's a it implies pretty big growth so that's what I was trying to kind of really reconcile yeah so the way we've uh way we've got it on a kind of year-to-date average balance basis to your point the down aggregate uh just under 600 million dollars but if I
spk01: when we kind of adjust for, if you will, the suite deposits and the broker deposits, the suite deposits of that near $600 million is $575 million of that. So, you know, our core bank deposits are actually up just modestly on a full-year average basis at about $160 million, and that's really what we're trying to measure in our guide.
spk05: Got it. Very helpful. I appreciate that. And then just moving to the to the auto slide on 21. So it says, I think there's four relationships, and I think two were the culprit this quarter and moved in. I know you said there were some idiosyncratic events, but can you just kind of give some color around that and maybe some of the credit statistics, FICO scores, portfolios, it's like a subprime portfolio, and just trying to better understand how long you guys have been in this business, why these credits have migrated and You know, just some background to the extent that you can provide it.
spk01: Yeah, so I think, you know, what we try to note here is there are four auto note financial relationships that total at $69 million that are in non-accrual. So that's the, you know, of the non-accrual balance, we just wanted to provide some perspective. This is a meaningful swath of it. And, you know, $65 million of that was made up of these two relationships that we noted. I'd say we've seen, and you can see in the chart there in the upper left, it's been a priority to kind of reduce this business over time as we've been monitoring The used car value market, obviously used car values spiked higher during what we call the COVID era, had started to retrace, and it retraced at a pretty abrupt pace. So it's been our objective to reduce our exposure to this, and you can see we've done that. Obviously, the two credits that most impacted us here in this quarter, you know, we had seen and were experiencing challenges from higher rates, and uh and lower lower overall values but again can't really go into the specifics of of the credits uh individually uh but again they did have some idiosyncratic items that uh caused them to certainly the situations to be exacerbated and likely accelerated but i don't want to take that away from the fact that higher interest rates and decline used car values continue to be uh probably the most pressing overarching issue and the reason we've we've we've been reducing exposure to this portfolio over time. You know, for one of the credits that we're talking about, we've been banking that customer for over 20 years. And so, you know, in the other, we've been banking for near 13 or 14 years. So these are not, these aren't new relationships. These aren't businesses we just got into, but it is an exposure now that we're intending to continue to accelerate the reduction
spk05: of of our exposure in it uh given the nature uh nature of the uh kind of credit profile as we sit here today I appreciate that caller well and if I could just sneak one last uh one in on on mortgage you know it's been nice to see the the progression the past two quarters on the gain on sale you know margin just you know either Jeremy or Will if you can just remind us You know, as rates, you know, assuming they come down a few times and mortgage rates, you know, come down, I would assume that gain on sale margin would move up. But can you just remind us some of the mechanics there and any considerations we should be thinking about over the next couple quarters?
spk01: Thanks. So from a gain on sale perspective, you're right. Historically, as rates have come down, an overall volume in the market, largely driven by refinance market, would increase. you would see gain on sale margins increase. I do highlight and I want to highlight the balance that we show on our prime lending slide because I do think it's important between the two revenue components. On page 18, you can see on a link quarter basis, gain on sale was up 12 basis points, but uh origination mortgage loan origination fees were down you know 13 basis points and so uh the way to the way to think through that is customers as rates have gone above seven percent at different times uh that seems to have been the demarcation line where customers have made the decision they want to buy down rate and so we would see we would see those levels of origination fees increase and potentially gain on sale drop lower as it's moved lower as rates have moved lower the gain on sale ticks higher but the origination fees uh then moderate so overall kind of aggregate revenue in that 365 to 380 basis point range has been what we've seen more consistently on an aggregate basis and so that's that's what we'd expect I think the paradigm has shifted from what I would call historical normal trends because of the long period of rates at zero. So if you will, that locked in effect for customers. So there's the largest block of customers have mortgages under 5%. So the first 25 basis points, even the first 100 basis points of reduction by the Fed, we don't actually see Or aren't actually projecting internally that we're going to have a material rebound in refinance activity. It will improve because there's obviously folks that have put loans on here in the sevens and to some extent, even the eights. But we do expect that it to be a muted impact to what you would have seen under normal course. of a rate reduction cycle until the Fed, until and in which point the Fed were to move, you know, a couple hundred basis points from here to start to bring some of those mortgages that were originated through the up cycle into the money.
spk05: A very thorough answer. Well, thank you for all the call. I appreciate it. Sure.
spk00: Our next question comes from Jordan Gent with Stevens. Please go ahead.
spk02: Hey, good morning. I just had one question on the NII guidance, actually. It moved down the guidance, but there's still that kind of significant range of the 6% to 10%, and we're already halfway through the year. Could you maybe walk us through what you're seeing as like the variable for that? Thanks.
spk01: Yes. So, you know, as we've said historically, you know, evaluating the midpoint of the range is generally a pretty good spot to evaluate so that, you know, even though the range is wide, that's still a reasonable way to think about our position. The big drivers to overall NII continue to be the repricing of deposits. So, the reason it's as wide as it is, is that basis. So as I noted in my comments, we only saw a one basis point increase in interest bearing deposit costs in the period, which is encouraging that we've reached the peak. If for some reason there were, you know, the markets got more competitive and moved that higher, obviously we'd be at the lower end of the guidance. And if they remain stable, we'd be toward the middle. And then obviously, if for whatever reason we were able to reduce deposit costs more aggressively based on Fed reductions or otherwise, we would probably be toward the higher end of the range. So from our perspective, deposit costs continue to be the largest and most impactful driver of our overall NII outlook and really the most variable component. And again, we try to put forth the reasonable scenarios that we could see in our guidance. But again, historically, the midpoint is a good place to evaluate.
spk03: Perfect. Thank you.
spk00: Thank you. And this does conclude the Q&A session, as well as the Hilltop Holdings second quarter 2024 earnings conference call and webcast. Thank you for your participation and you may disconnect at any time.
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