Q3 2019 Earnings Call
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Please note. This event just being recorded I would now like turn the conference over to Erik Young Li. Please go ahead.
Thank you.
Before we get started please note that certain statements. During today's presentation that are not statements of historical.
Including statements concerning such items as our outlook then the strategy future plans financial condition and anticipated amendments does he see filings are forward looking statements.
These statements are based on management's current expectations concerning future events that by their nature are subject to risks and uncertainties.
Our actual results capital and financial condition may differ materially from these statements due to a variety of factors.
According to the cautionary statements referenced in our discussion today and that was included in our most recent annual report quarterly report filed with the FCC.
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.
Putting taxable equivalent net interest margin pre purchase accounting taxable equivalent net interest margin tangible common equity it tangible book value per share.
A reconciliation these measures to the nearest GAAP measure maybe found in the appendix. This presentation, which is posted on our website that IR dot hilltop Dash holdings Dot com.
That I will now turn the presentation over to hilltop President and CEO Jeremy for.
Thank you Eric and good morning.
Before we get into the financial results I want to recognize as part of our succession planning, we recently announced that effective January 1st to 2020, D. Thompson will be promoted to president and CEO Prime lending.
Our current prime lending chairman and CEO pod Baumann will remain as chairman and provide ongoing strategic guy.
Todd is let Brian let me as CEO since 2011 and has helped shape the company success.
We are extremely grateful for his tremendous contribution in visionary leadership. He has been an incredible asset to prime lending and the overall hilltop organization is also a dear friend and we look forward to working with them in the future it's Jim.
Steve join Prime lending in 2011 and has been president since 2017.
He had previously held successive positions as the company's regional divisional a national production leader and it's very well respected across the mortgage industry.
Under his direction. The company has established a plan for sustained success.
It's on delivering superior mortgage experience to our value customers I'm excited about prime lending prospects that future success under Steve and thought partnership.
Now moving onto the financial results.
For the third quarter 2019, Hilltop reported net income of $79 million were 86 cents per diluted share representing a 44 million dollar increase compared with the same quarter last year, and a 22 million dollar increase compared to prior quarter.
Additionally, hilltop delivered a return on average <unk> assets of 2.26% and a return on average equity at 15.6%.
This quarter, we delivered 20% growth in revenue compared to third quarter, 2018, and 8% compared to prior quarter in conjunction with that non interest expense, excluding variable compensation declined by 8% compared to third quarter, 2018, and 4% compared to prior quarter.
This positive operating leverage is primarily a result of the impact of lower rate and market conditions in our mortgage related businesses.
In addition to our worked enhance business to business operations and realize efficiencies across the organization.
Our diversified business model enabled us to capitalize on low rate hi, mortgage volume markets such as this past quarter in multiple ways.
Putting mortgage origination national warehouse lending and through our structured financing capital markets death at Hilltop Securities.
That's right that hilltop is our ability to generate significant earnings growth in environments, such as the well remain grounded what the solid earnings base from Plainscapital Bank, our cornerstone entity.
This quarter average loans held for investment excluding broker dealer loans grew by $450 million or seven per cent compared to prior year third quarter.
Growth can be attributed primarily to our previously mentioned national warehouse lending business and the impact of lower rates and the increase in refinance activity.
Summary, mortgage loan originations at prime lending grew to $4.8 billion than Q3, an increase from third quarter, 2018% to 31% also from strong mortgage refinancing activity.
Refinancing volume of prime lending as a percentage of loan origination volume during the third quarter increased from 11% in 2018% to 29% in 2019.
Net revenues that hilltop securities increased 28% year over year as trading gains in structured finance.
Business grew revenue by $15 million compared to Q3, 2018 and favorable market conditions, coupled with improved trading performance delivered a 53% increase in trading volumes during the period.
Through the first nine month for the year hilltop is paid $73 million to repurchased 3.4 million shares of common stock.
This concludes the transaction in August with Oak Hill capital partner to repurchase there are 2.2 million shares at a price of $22.25.
This agreement was made as a result of provisions governing the life of bonds at Oak Hill capital partner and at the consideration that hilltop board of directors relate to our stock purchase repurchase program.
We remain pleased with our current capital position with the tier one leverage ratio of 12.7% a common equity tier one capital ratios, 16.2% and approximately 500 million an excess capital.
For the quarter criticized loan, but criticized loan levels and Npis remain steady.
Moving now to slide four.
For the third quarter of 2019, Plainscapital Bank recorded pre tax income of $52.7 million, an increase of 37% from third quarter 2018.
Growth in average balances and a reduction in operating expenses drove increased profitability.
Oh no the third quarter 2018 noninterest expense included the bank of River ABS transaction related cost was $6.6 million.
This past quarter also mark one year since we completed the bankrupt River Oaks transaction.
And we now have strong leadership in Houston that has been able to drive significant deposit growth upgrade the quality and amount of our lender and improve the region profitability by executing on our integration strategy.
Loan growth has been pressured by unexpected pay down.
The overall customer relationships have been strengthen and several cases expanded as a result of our digital services and balance sheet capacity.
Overall protect us we continue doing counter intense competition for both loans and deposits, which has resulted in margin compression.
We aim to remain competitive but discipline in our approach to pricing into her right.
Brian winning produced pretax income of $31.5 million for the third quarter compared to 4.8 million in Q3 2018.
In addition to the previously mentioned <unk> origination volume growth gain on sale spreads improved by five basis points compared to prior year and two basis point linked quarter.
Well variable compensation increase in relation to origination volume non variable compensation and operating cost declined by $2.8 million compared to prior year.
This was caused by the avoidance of increases in headcount and tightly managed operating Paul.
Hilltop Securities third quarter 2019, pretax income was 27 million dollar and pre tax margin with 22%.
Pair to $10 million and 10% in 2018.
It is another strong quarter for both fixed income capital markets and structured finance businesses.
Even higher annually by favorable rates and market conditions.
And structured finance the TB business, we're very active as a result of low mortgage rates.
They take some capital markets had a strong quarter, mainly driven by the CMO and credit businesses.
Public finance had a better quarter a deal flow and great.
Brad wing it has come in as hilltop Securities CEO and made a big impact.
While favorable market conditions that aided our 2019 result, there's a lot of productive work happening to prove the cost structure and overall return profiles the business.
Results at National Lloyds were improved compared to prior year as we reported pretax income of $6.5 million for the quarter with a combined ratio of 83% compared to 94% during the third quarter of 2018.
The lower combined ratio as result of both lower frequency and severity of storm and the previously disclosed strategy of exiting non core states.
In summary, this was an excellent quarter for each of our businesses and I want to thank all of our teammates across hilltop or their part in executing towards our combined vision.
We are seeing the strength of our shared services model and collaboration across the organization.
Overall, our platform for growth and efficiency initiative is moving ahead of schedule and we plan to provide a financial update of that progress during our during our Q4 2019 call.
With that I'll now turn the presentation over to well for walk through the financial.
Thank you Jeremy.
Before we review the financial performance for the core Warner reviews closure made last evening.
[noise] based upon a review recently conducted hilltop determined that we did not design and maintain effective internal control over certain aspects relating to the termination of the qualitative factors considered by management.
Allowance for loan losses estimation process, particularly quantitative support for such qualitative factors.
Management and the audit committee of the board of Directors concluded this controlled efficiency constituted a material weakness as of December 31 2018.
The data the press release, we do not expect this control deficiencies could result in a restatement of our consolidated financial statements.
We expect to file an amendment to our annual report on Form 10-K for the fiscal year ended December 31 to Belviq team in quarterly reports on Form 10-Q for the quarters ended March 30, Onest 2019 in June Thirtyth 2019 to include disclosures concerning this material weakness.
In addition, we anticipate that the reported pricewaterhousecoopers on our internal control over financial reporting at December 31st 2018 will be revised reflect the identification of this material weakness.
Hilltop management and our board of directors are committed to maintaining a strong internal control environment.
Management has evaluated the material weakness described above it has made significant progress and updating its design and implementation of internal controls to remediate, yet Richard control deficiency, and enhance our internal control environment going forward.
Moving to page Bob.
As Jerry discussed for the third quarter of 2019 built up reported 79.4 million of income attributable to common stockholders. According to 86 cents per diluted share.
During the third quarter the provision for loan losses included approximately 380000 net recoveries as charge offs for the quarter remains low.
During the third quarter revenue related to purchase accounting with $7.8 million and expenses were $1.9 billion, resulting in a net purchase accounting pre tax impact of 6 million for the for the quarter.
In the current period, the purchase accounting expenses, largely represent amortization of deposit and other intangible assets related to prior acquisitions.
Regarding loan accretion.
As the purchase portfolio balances continue to decline, we expect scheduled interest income related to the loan accretion averaged three four and $6 million per quarter over the next few quarters.
Hilltop capital position remains strong with a period in common equity tier one ratio of 16.15% in a tier one leverage ratio 12.67%.
Moving to basis.
Net interest income in the third quarter, when new 113 million, including 7.9 million of loan accretion.
Net net interest income increased $3 million or 3% versus the same quarter in the for our year.
The growth in net interest income was driven by growth in loans held for sale and our national warehouse lending business. Both of these loan portfolios were positively impacted by the favorable mortgage conditions during the quarter.
We do expect that both of these portfolios will begin to decline during the fourth quarter as the mortgage business moves into a more traditional seasonal cycle.
Net interest margin equated to 3.4 or 5%.
The third quarter.
The pre purchase accounting taxable equivalent net interest margin equated to 3.2%, which declined by one basis point versus the same period in the prior year.
On a linked quarter basis.
Well of pre purchase accounting net interest margin declined by six basis points, resulting in lower yield on loans held for sale and a one basis point increase in interest bearing deposit.
During the third quarter long term interest rates and more directly tenure rates continue to continued to decline that began earlier in the year.
Overall, the average yield on loans held for sale during the third quarter dropped by 46 basis points to 414 basis points, putting pressure on net interest margin during the quarter.
Further.
During the third quarter than average tenure yields declined by 55 basis points, which we expect will continue to put downward pressure on loans held for sale yields during the fourth quarter.
As it relates to interest bearing deposit calls, we do believe that the portfolio reach peak level for this interest rate cycle during the third quarter and we'll begin to decline at a modest pace over the coming quarters.
The combination of lower loan held for sale yields and lower deposit beta rates early in this rate lowering cycle given competitive given competitive pressures. We expect net interest margin will continue to trend lower for the remainder of the year and in 2020.
While these factors could move us to the lower end of our outlook.
Range, we are maintaining our full year average pre purchase accounting net interest margin outlook of 3.25% plus or minus three basis points.
We will continue to revisit our assumptions based on the outcome of future Federal reserve rate movements yield curve shifts and asset liability flows across the portfolio.
Moving to page so.
Total non interest income for the third quarter of 2019 equated to $341 million.
Third quarter mortgage related income in fees increased by $52 million versus the third quarter 2018.
During the third quarter 2019 environment in mortgage banking improved principally driven by the aforementioned declining in the 10 year rates, which fell below a 150 basis points at times during the quarter.
The decline in rates drove a significant an increase in refinance activity as refinance volumes increased from the prior year period by 975 million to 1.4 billion during the third quarter of 2019.
Gain on sale margin outperformed our expectations for the quarter as they increased to 335 basis points for the period.
Regarding mortgage gain on sale margins given the current competitive dynamics recent pricing actions taken by the agencies and our expectations on market rates, we expect the gain on sale Morgan margins will trend lower throughout the balance of 2019.
Other income increased by $19 million, driven primarily by improvements in sales and trading activities in both the capital markets and structured finance businesses that hilltop securities.
Favorable market conditions resulted in a 29% increase in structured finance mortgage backed securities volumes.
These businesses continue to realize the benefits the investments we've been making to improve our structure new distribution capabilities since the third quarter 2018, and while we believe these investments will continue to provide ongoing benefits. It is important to recognize these businesses can be volatile from period to period.
They are impacted by interest rates overall market liquidity and production trends.
Moving to page eight.
Noninterest expenses increase from the same period, the prior year by $14 million for $350 million.
The growth in expenses versus the prior year were driven by an increase in variable compensation of $34 million hilltop securities and prime lending.
This increase in variable compensation was linked to strong fee revenue growth in the quarter.
In the lab over the past six quarters, we have continued to make progress in a lot of air businesses to the current market conditions and driving efficiencies across the franchise.
Through these efforts head count non variable compensation professional services costs and marketing and development expenses continue to trend lower as we make progress against our efficiency objectives.
During the third quarter hilltop incurred $3 million and costs related to ongoing core system enhancements.
Moving to page now.
Total average age of our loans grew by 6% versus the third quarter of 2018 growth versus same period. The prior year was driven by growth in our mortgage warehouse lending business, which experienced strong growth in the quarter or ending balances grew by approximately 80 million $180 million on a linked quarter basis.
Based on year to date average loan growth international warehouse lending portfolio current production trends seasonal unscheduled pay downs, the current competitive environment and our focus on high quality conservative underwriting.
We now expected full year average HFI loans will grow 6% to 8% in 2019.
Turning to page to it.
As previously noted and as shown on the chart. The top right of slide the bank is maintained solid credit quality through third quarter 2019, as nonperforming assets declined $21 million from same period in the prior year.
Over the last few months, we have seen some weakness began to emerge at our energy lending portfolio as cash flow performance, coupled with overall market liquidity in the energy sector are becoming straight.
As it relates energy lending total commitments at 930 were approximately $285 million and total loan outstanding balances were approximately 2.3% of the banks total loan loans held for investment portfolio.
The banks allowance for loan loss to Asia buyout loans ratio equates was 82 basis points the in the third quarter 2019.
It is important to note that we do.
Have remained discounts across the purchase loan pool and these discounts provided additional coverage against future losses.
Turning to page low.
Average total deposits are approximately $8.6 billion and an increased about $477 million versus the third quarter 2018.
Interest bearing deposit cost of remained relatively stable rising by one basis point from the second quarter 2019 as competitive pressures remain.
As shown in the graph the bank has been able to show steady growth of noninterest bearing deposits as we continue on deep continue to focus on deepening our relationships with our clients.
On page 12.
During the third quarter 2019, Plainscapital Bank continued to demonstrate solid improvement in profitability generating 53 million a pre tax income during the quarter.
Quarter's results reflect the benefits of growth and national warehouse lending as well as solid expense reductions versus the prior year.
Total noninterest expenses declined by 14 million versus the prior year period, driven by lower operating call. The elimination of loss share expenses in 2018 at a lower FDIC premium.
Of note third quarter 2018 results included 6.6 million of nonrecurring transaction related expenses associated with the acquisition of the bank Riveros in August of 2018.
Also during the quarter the bank did recognize 2.6 million of losses on the sales certain available for sale securities.
The proceeds of these sales will be fully reinvest in the securities portfolio during the fourth quarter.
The focus it blames capital remains consistent provide great service to our clients drive profitable growth, while maintaining a moderate risk profile and delivering positive operating operating leverage by balancing revenue growth and expense efficiencies.
Turning to page 13.
Prime lending generated a pretax profit of $32 million for the third quarter 2019, driven by strong origination volumes that increase from the prior year by 1.1 billion EUR, 31% gamma gain on sale margins improved as noted earlier as strong secondary market conditions supported improved profitability.
While overall volumes have increased the focus on operating efficiencies has not Wayne as prime lending has maintained solid rigor around staffing and other middle and back office expenses across the platform.
Good for prime lending is to generate profitable mortgage volume continue to focus on operational efficiencies and to successfully launch our new mortgage loan origination system.
Turning to page 14.
Securities Liberty pretax profit of $27 million for third quarter 2019, driven by solid execution was structured finance capital markets businesses, which have been which had benefited from both our ongoing investments in structuring sales and distribution as well as improved market conditions.
While activity was strong in the quarter results from both of these businesses can be volatile market rates spreads and volumes can change significantly from period to period.
Related to public banking net revenues grew by grew by $3.9 million versus the same during the prior year and we are continue invest in our franchise to support long term growth by strategically hiring bankers to support client expansion at acquisition.
The focus reeled off securities is to grow profitable revenue.
Optimize operating expenses managed market and liquidity risk within a moderate risk profile and finalize deployment of the new core operating system.
Moving to page 13.
National Lloyds recorded a $6.5 million pretax profit for the quarter, which reflected a lower frequency and severity of storm activity and claim related laws pretty growth in our core markets remains our primary focus for 2019.
Moving to page 16.
For 2019, we are increasing the outlook for full year average loan growth to 6.8% driven by the strong performance in our national warehouse lending business year to date.
With an expectation that balances begin declined seasonally during the fourth quarter.
Full year average deposit growth outlook remains consistent.
Also as a result of higher loan held for sale balances in national warehouse lending balances for the year, we are increasing our net interest income guidance to include 100% growth within the range.
To reflect the strengthen our fee businesses, we're adjusting our noninterest income outlook higher to reflect the results. During the first three quarters in 2019 and the improvement in market conditions.
Our noninterest expense outlook ranges projected higher variable expenses will continue to be correlated to our fee revenue business.
This outlook represents our current expectations with respect to the market rates and overall economic activity. These however may change throughout the remainder of the year and will provide updates as necessary on quarterly call going forward.
In addition, we would like to provide an update on the projected impact of the adoption in implementation of a new accounting standard for assessing allowance for credit losses.
Only known as seasonal.
Based on our current assessment of the credit risk in the portfolio, our expectations of prepayments and our base economic outlook scenario, we estimate the allowance for credit losses, plus the reserve for unfunded commitments will be in the range of $80 million to $110 million. This compares to the combined reserves as of the third quarter of 2019.
In of approximately $58 million.
We will continue to assess the credit quality in the portfolio. The current economic outlook assumptions and other factors that will affect this assessment and the ultimate range throughout the remainder of 2019 as we work towards the January Onest 2020 implementation date.
Operator that concludes our prepared comments and we'll turn the call over to you for the Q and a section of the call.
We will now begin the question and answer session.
Good question you May Press Star then one on your telephone keypad. If you are using speakerphone. Please pick up your handset before crossing the keys.
Withdraw your question. Please press Star then.
At this time, we will pause momentarily to similar roster.
Our first question comes from Robertson with Piper Jaffray.
Hey, good morning, everyone.
Good morning, as we go on.
Good happy Halloween.
Wanted to talk about the guidance first second and just thinking about the fee income changed versus expense change can you maybe give us some color on the magnitude as a gain on sale margin compression that you're expecting in the fourth quarter and then I don't know and the Q comes out but was hoping for.
Maybe a little color on what servicing interest rate locks and the mortgage servicing fair value mark or in the third quarter.
Yes. So this will I'll provide some insight so from a from a gain on sale perspective, as we noted.
The increase in outperformed our expectations for the third quarter.
Really based on the strength and the overall market in from an outlook perspective, we are expecting those margins to contract.
Into the fourth quarter.
Additionally, as it relates to changes made to the agencies in terms of pricing as well as just overall competitive pressure as volumes seasonally decline, we would expect that to moving to move into the three twentys.
As a matter of as a matter contraction.
Okay.
That's helpful.
And then just wanted to talk about obviously.
Really strong performance from the broker dealer and Jeremy used to kind of call that all 100 million dollar revenue quarter business.
But you've made a lot of investments and you've seen growth and a couple other key pieces.
Can you maybe give us color.
I know you don't want to give guys necessarily for 2020, but just thinking about.
How the investments might impact on revenue run rate from here aside from obviously variability and interest rates impacting couple of the pieces.
Sure Yeah, we're not prepared to give guidance for 2020, but no I would expect and hope that we're going to.
Generate more than 100 million of revenue quarter I think that.
No. We we should have continued strength in building strength and our capital markets business and public finance.
Okay.
And then maybe just one last one from me just going back at the margin and maybe a little more color on.
You're going to have pressure from here.
How much can you just thinking about the cost of funds is the magnitude of the pressure you're expecting in the fourth quarter.
Less than three Q, maybe give us give little more color on how you're thinking about.
The cost of pause offsetting asset yield attrition.
Yes, yes, yes, I think from our most effective we got into the range of 325, plus or minus three so we don't want to.
Any more detailed in that what's what's driving it though again as we do expect loans loan for sale loans held for sale yields.
We continue to be under pressure as again throughout the third quarter. We did continue to see the tenure.
Decline and obviously, that's that's an indicator the other parts of this is from a deposit pricing perspective.
We are certainly across our competitive set seeing a reluctance to move rates lower at a.
What I would call and expected pace, given given the fed rate declines and so we are.
As as you would expect continuing to focus on being competitive while.
Ensuring that we are reducing rates commensurate with market changes as quickly as we can but we are seeing a reluctance in the market of deposit rate declines certain with some of our key competitors across some of our key markets.
Those will be the two significant drivers of kind of NIM.
Compression going forward.
Okay, great. Thanks for all the color congrats on the quarter.
Thank you.
Our next call comes from Michael Rose with Raymond James.
Hey, Good morning, guys, how are you Hey, Michael.
Hey, just wanted to talk about mortgage for a second if I look at the CMBS data and I know you guys are more of a purchase shopping clearly had a pickup in rifai. This quarter. The MBS data calls for a pretty strong rifai quarter understand the gain on sale margin, but should we expect less about a seasonal decline in your volumes than we've seen.
Let me just given the drop in rates than the previous forecast. Thanks.
I think the I think our outlook would have us outperforming kind of normal seasonal declines in the context of modestly higher but that said you to take the shape of the curve. The fourth quarter will just seasonally be lower so it's not not we don't expect the fourth quarter volumes to look like the third quarter volumes.
They are going to fall off seasonally.
Maybe to slightly slower pace given.
Given the strength of the refund refinances.
That said Thats helpful.
Just shifting gears to loan growth, which has been help or investment side has been has been pretty solid can you. Just generally talk about your pipeline, where it is now versus maybe.
Quarter ago, or a couple of quarters ago, where are you seeing strength and where some challenges might be and maybe I know the average growth. This year I understand the guide but is should we think about next year.
Depending on what happens economically that growth can sustain relatively near these levels. Thanks.
So I would say from a pipeline perspective, I think as we've noted the past our pipelines are strong the teams working hard.
With our clients and prospects everyday.
What I would say is the pull through rate our pull through rate.
Has declined as we've seen.
Market pressures as it relates to both pricing and structure, but I'd say, probably more more acutely structure and so we are.
With a protocol for perspective, seeing fewer those deals actually get booked.
Than you've been you might otherwise have seen earlier in the cycle. So from from our view, there's a lot of activity out there, but the competitive pressures as we've noted and Jeremy noted in his comments.
Do persist and we are seeing again.
Some structural structural pressure on a lot of transactions as well as.
Some very intense pricing pressure.
As it relates.
As Jerry mentioned for we're not we're not going to provide kind of full year 2020 guidance here.
But we continue to say, we're going to be focused and rigorous about maintaining our credit underwriting standards as best we can while maintaining competitiveness through the cycle here.
Understood maybe just last one for me so last year you guys.
Earlier this year rolled out the.
250 million PPNR by 2021 that clearly the interest rate backdrops change, but mortgage and it'll be the capital markets business. The broker dealer is giving you a boost.
Understanding all the variables that go into it is that still a good target at this point.
May I think that like Weve tried to communicate that to fit these not the target the target is.
Generate $84 million of.
Run rate.
Efficiency and that's how we're going to report on after next quarter.
That's correct. So what we've said it would just be just.
What we said is that was a all else equal 2018 role or in the Gerry's 0.8 $4 million is what we expect to be kind of run rate benefit from those initiatives and then we'll provide an update where do you can order as it relates to the 20.1 year.
Obviously there'll be substantial changes to macroeconomic environment other other drivers.
Learning there, but our what we're tracking to is how we're executing against the three definitive program, we laid out and kind of value we will be of extracted from those.
And there's no changes to those those three programs in terms of what you expect the 84 million.
Not in a report.
Okay.
Right. Thanks for taking my questions guys.
Thank you.
Our next question comes from Michael Young with Suntrust.
Hey, good morning, everyone.
Wanted to start with maybe just a follow up on.
Prior question just of that 84 million that you're targeting can you give us a sense of maybe where we're at in terms of progression on that at least to date I mean, we've seen really good fixed cost reductions throughout the year. This year. So just trying to see how much of that we should expect to continue over the next two years.
Well.
As we said, we say we rolled it out that we were planning on generating $84 million of run rate benefit from the platform for growth efficiency initiatives.
We said that we thought that a lot of that wouldn't be fully phased until 2021 with the system.
Does that put in context for the audience, but I think it's just like we said in our.
Our comments before is that but believe that were ahead of schedule.
And.
We see it in a number and we are hearing it from a lot of.
Lower messaging as far as focusing on efficiency, but I can't give anything definitive today or we're not going to give anything today, we are planning on giving you.
More fulsome update next quarter.
Okay.
Maybe just digging in a little deeper we kind of seen a million or so improvement and the broker dealer and mortgage business year over year. It's been a couple of million dollars, but the bank had a material drop and expenses. This quarter I know there is the FDIC assessment.
Credit essentially this quarter can you give us a sense of how much was assessment credit versus how much is just kind of run rate expense reduction there.
The assessment credit was approximately $1 million and the you again of that changes I try to note in my comments at the $40 million chain 6.6, or that was related to bore related expenses year on year. So.
We had those integration related expenses last year that obviously had a persistent this year, yes. So I mean I think so we'll point I mean, I think that there.
Or the 14 million.
No.
Big chunk of it was more than that but they are a significant jump there that we give credit to the bank and what they're doing.
And generating the efficiency so there's some real core savings there.
Yes, the 14, we would try to called out on the slide.
The 14, we would suggest approximately half the gerry's point.
Is is what calc, our core and recurring when we had about six or so we have six $7 million bove items.
In the prior year period.
Okay.
And.
Maybe just on the mortgage volume side, you guys really held your own in the refi market. This quarter historically have been more of.
Purchase money shop. So was just curious if there been any shifts in sort of production.
Stance or anything like that that allowed you to capture that market share and should we expect that to continue going forward.
No that's not been a change in strategy I think it's really that the credit to the to the folks the loan originators in the field and they were working overtime and.
Tapping into their old customer base and being able to generate.
A lot of refinance volume when market provided.
Okay, and just last one on on M&A appetite and kind of just what you're seeing out there in terms of pipelines and have you guys.
Seen any more interest and people looking for cash buyers at this point in the cycle.
We don't really have any update then we'd given prior quarters and that we.
We feel like the in the healthy economic environment, but we're in the later stages of.
A real estate cycle would see intense competition. This on deposit and loan side of banking. So we're trying to be patient cautious I do think that.
With our outperformance.
On a relative basis earnings basis.
We are moderately better position.
And we are seeing.
We are receiving more in downfall.
Our next question comes from Woody Lee with KBW.
Good morning, guys.
Morning.
So looking at the credit quality side. It was great to see in NPS remain steady outside of energy or are you seeing anything in your markets that are giving you a little bit of Paul is there any segments, you're trying to pull back on at this time.
We continue to looks so as we noted and you noted here energy.
Is probably the one we will highlight but as we look across the portfolio.
We're focused on multifamily we're looking at.
We're looking at our any any retail small retail exposures looking at our recent real estate exposures really across the Texas footprint.
I would say anything as systemically created great Britain any issues, but again, we do believe is Jerry just noted.
And we've noted through our comments overtime. We believe we're in the late part of this cycle. So we're we're.
Hi, the awareness of cattle looking across the portfolio and doing that inspection.
Good to hear.
And then in the prepared remarks, you mentioned you saw some elevated payoffs this quarter, hoping you could quantify that in sort of how those pales compared to last quarter.
From a from a payoff perspective without kind of they were this year that I'll, just I'll quantify more our year to date basis.
The payoff large loan belt, but we'd say kind of over $2.5 million average loan size payoffs.
This year year to date have almost equated to what we saw last year. So that just gives you a sense of the speed and pace and some of that is reflective of.
As Jeremy mentioned, a healthy market, where things are turning over quickly.
But also.
I think reflects a change in certain certain of the distribution certain real estate markets, where folks are taking things to the term markets faster.
Then they then than maybe the mortgage would've otherwise born historically, so we're seeing.
A persistent kind of pay off headwind for loan growth perspective, but again.
We continue to watch it.
As a matter of kind of ongoing new business and as I mentioned earlier, while our pipelines are strong we continue to be focused on our underwriting standards.
Okay. That's that's helpful color and then last from me you mentioned you got to a million dollars FDIC credit. This quarter do you have any credit going forward or did you receive the full benefit this quarter.
That that that is not a recurring benefit.
Okay got it thanks guys.
Thanks.
Our next question comes from Chris Gamaitoni with Compass point.
Good morning, guys.
Congrats.
I went to start on the brokerage business.
Are there any large inventory gains in the surface finance business saw one Q this quarter.
Not as much but yes, we had we actually had a pipeline market ended the quarter a negative pipeline more.
This quarter, just because of kind of where rates ended at the end of about $4 million negative so that to two quarters first quarter. Good positive gains third quarter, we had a let's say a modest.
A modest negative mark about though.
Yes, so most of the.
Strengthened CBVA for the quarter was the result of increase in volume of about 30% and then.
Thanks, Brad.
Okay.
Thanks.
Yes, I know, it's it's a volatile business.
Yes, and kind of called the refinance environment.
But if these more capital light businesses continued to act well.
And your being very conservative on the low growth side, just what do you do with can be excess capital that's going to be created at the balance sheet isn't growing at the same time as earnings are doing so well.
Yeah, we're trying to stick to our plan as instead of maintaining about $500 million of excess capital.
And ER.
We're turning money.
Shareholders that cycle Donna dividend.
It's been pretty productive.
$75 million Terry Hart.
Okay, that's great color.
The other just a little globally wants it looked like the securities borrowed yields went up a lot in the securities loan costs.
Couple lot as low quarter over quarter, just wondering kind of what the nuance there and how we think about way going forward.
So that portfolio can be volatile and it really is driven by the overall activity and accessibility of certain certain equities in the portfolio about opportunities as those will become available.
So we did see an increase in the period, but again, our our focus kind of thing that businesses generally forward to range inner around 1 billion five 2 billion six overtime from a balance perspective, and the net pre tax benefit.
Okay.
Yes.
$700000.
Thank you so much.
Thank you thanks.
Our next question comes from Matt Olney Stephens.
Good morning, guys Adam on for Matt.
Matt.
So I wanted to ask on the insurance Division.
Yes.
And insurance was down 10% year over year, you said due to wider storm activity.
What do we think about exiting kind of than five non core markets are core stage during the quarter. What's a good run rate for that going forward I know, it's hard to predict but just.
You are asking what I apologize if you didn't come through very clearly.
So the the Boston ratio.
I could it does five noncore markets is it's going to kind of stabilize or on a 40% ratio or is it what's a good combined run right now.
Well you know, it's kind of the seasonality volatile but.
I think that loss nalley ratio for the.
For the year should be about.
We wanted to be probably in the.
50 to low 50%.
Okay. Thank you that's helpful. And then I may have missed this it was asked earlier mortgage banking Twoq you had a 13.5 million fair market gain included.
What was that in Threeq.
We'll we'll we'll disclose that when we file our Form 10-Q .
Okay. Thank you that's all I had.
All right. Thank you.
As we have no further questions. This concludes our question and answer session and also our conference call.
Thank you very much today's presentation you may now disconnect.
Yeah.