Q4 2019 Earnings Call

What's in Hilltop security structured Finance Capital markets and public fans delivered net revenues at $71 an increase of $25 or 55% compared to Q4 2018 for Q4 2019 structured finance and capital markets benefited from market dynamics that improved notably from the prior year and Public Finance Salzburg activity amongst issuer, which was consistent across the municipal industry.

are strong

Position enabled us to reinvest in platform building initiatives this past year while also returning $103 to shareholders through dividends and share repurchases. Additionally. Our office director has recently increased our dividend by 12.5% by declaring a quarterly cash dividend of $0.09 per common share payable on February 28th, 2020.

Fourth-quarter provision for losses of $7 reflects 1.3 million of net charge-off 2.2 million of impairment related to 3 10:30 loans and three point two million of updates to the qualitative factors for classified loans and real estate concentrations, when we get into the financial review wheel is going to provide a brief update on the impact and outlet for Cecil.

As previously disclosed Hilltop entered into a definitive agreement with a line Financial Holdings for the sale of our insurance subsidiary National Corporation in a hundred and fifty million dollar all cash transactions. We believe this is a compelling transaction for all parties involved. It will allow Hilltop to better focus on our core banking mortgage and broker-dealer businesses long as well. This is an exciting opportunity for National Lloyds to now grow under a line with their experience and insurance focused leadership team National Lloyds is an international company without an invoice long-standing agency relationships and improving Financial results in an insurance Market. I'm very proud of the work and accomplishments achieved during our ownership. We currently expect the transaction to close in the second quarter of 2020 subject to customary closing conditions, including required regulatory approvals.

moving to fly for

The banks pre-tax income was relatively flat at 7 million dollar decrease and purchase accounting accretion was offset by extensive improvements in the business during the quarter. There has been a lot of positive work done at the bank to improve the efficiency ratio. And this was reflected with the lower professional and Business Development expenses.

An increase in mortgage volumes of 1.4 billion and stable fixed costs offset a 30 basis-point Decline and gain-on-sale margin and resulted in pre-tax income for the period of eight point five million dollars an increase of 11.2 million from 2 to 4 2018.

The declining gain-on-sale margin is attributed to pricing actions taken by the agency and production volume retained at PlainsCapital Bank.

This has been an extremely strong year for prime lending and I want to come in the leadership and loan officers for their stewardship and hard work Hilltop Securities demonstrated solid Financial results the fourth quarter with pre-tax income and proving to 24 million dollars on that revenue of 113 million a 21% pretax. Margin notably the strong quarter demonstration improvements and nearly all business segments while Brad and his team actively build the brand post conferences and increase our advertising efforts National always had a positive force border with less severe storm activities in the prior-year drove a Lawson l e ratio of 43.6% compared to 60.6% in Q4 2018 overall results in National Lloyds has improved is our strategy to exit non-core States and Commercial lines of businesses is substantially complete.

Maybe just like five.

We recently completed the first year of a three-year program that includes a broad set of initiatives to enhance our platform and streamline operations with the lowering operating costs and building a foundation for future organic and acquisitive growth through year one. We have completed actions that have resulted in $45 million dollars in benefits and wage and are on track to meet our $84 Target by the end of 2021.

We have already mentioned the improvements made in streamlining our mortgage operation and it's seen the results of those efforts in 2019 further. We are in the deployment phase of our new loaner system is prime lending that will continue to drive efficiency while also giving a loan Originators better to service their customers.

A 2018 we began investing in the build-out of our secure type of product at Hilltop security and through the business unit. We have been able to better react and earn from the favorable mortgage invite 2018.

the procure

At work that started in 2019 has enabled us to consolidate existing contracts across the Enterprise as they come to and realized cost days. We have recently started work on our larger. I'm in real estate contract and are optimistic in the potential for savings to be had over the next few years. Our back office has been through a lot of change with the creation of a shared services platform to support i t h are legal real estate and other key functions across the organization's while our shared services departments continue to mature. We have already been able to reduce redundancies improve consistency and and scalability overall 2019 was a fantastic year for Hilltop both financially organized and organizationally.

Which we transition through substantial succession planning and the organization has done an amazing job of working together to to deliver on our goal. We now enter twenty-twenty with strong momentum package and focus with that. I will turn the presentation over to will to walk through the financials and provide an outlet of twenty-twenty. Thank you. Jeremy moving to page six months is Jeremy discussed for the fourth quarter of 2019 Hilltop recorded 49.3 million of income attributable common stockholders equating the 54 cents per diluted share with the full year 2019 Hilltop reported 225 million of income attributable to Common stockholders, which equated it $2.44 per diluted share full year results reflect a 19% increase in diluted EPS versus 2018 results.

During the fourth quarter.

The provision for loan losses and six point nine million dollars include approximately 1.3 million dollars of net charge-off impairment related to certain previously acquired loan pools and to build any overall allowance to remove both concentration risk and negative credit migrations in the credit portfolio during the quarter during the fourth quarter Revenue related to purchase accounting was five point seven million dollars in expenses were one thirty-seven million dollars resulting in a net purchase accounting pre-tax impact of 3.9 million quarter in the current. The purchase accounting expenses largely represent and rejection of deposit and other intangible assets related to Prior acquisitions.

Hilltop Capital position remains strong with a. In common Equity Tier 1 ratio of 16.69% And if you're one leverage ratio of 12.71% off the page seven.

That interested in, in the fourth quarter equated 111 million, including the 5.7 million purchase accounting accretion previously mentioned versus the prior-year quarter net interest income decreased by six point four million or 5%

reclining

That interesting, driven by a decline and purchase accounting accretion of $7 vs the forequarter of 2018 further versus the prior-year. Both average HF, I'll own meals and I have declined by 66 and 75 basis points respectively these declines and Loan yields reflect both the lowering of raised by the Federal Reserve during 2019 in ongoing competitive pressure for new loan originations.

Interest-bearing deposits deposit call increased 13 basis points versus the prior-year. But teeth during Q3 2019 and declined by 12 basis points on a link order basis. We expected deposit cost will continue to decline in 2020. I'll be at a slower Pace than the asset yields noted earlier somewhat all settings on Thursday and then interest margin has been growth in both the loans held for investment and Loans held-for-sale portfolios. As we mentioned on prior update calls are mortgage-related loan portfolios have shown significant growth versus the prior-year principally driven by lower rates and Strong Mortgage origination volumes during the fourth quarter loans for sale increased by $628 million dollars versus the same. The prior-year in national warehouse lending business experience growth of 334 million both on an ending balance basis.

both of these loan portfolios

Positively impacted by the favorable mortgage conditions and higher production levels during the quarter. We do expect it. Both of these portfolios loans held for sale and national warehouse lending will begin to the club during the first quarter of 2020 as the mortgage related businesses move into a more traditional seasonal cycle. I'm moving to page eight.

Total not interested in coming for the fourth quarter of 2019 equated to $299 for for mortgage-related income fees increased by $40 versus the fourth quarter of 2018, during the fourth quarter of 2019 the environment and Mortgage Banking remain strong and our business out performed our expectations in terms of origination volumes principally driven by lower mortgage rates, which drug approved demand for both refinance and purchase mortgages versus the prior-year purchased mortgage volumes increased by $371 or 14% And refinance volume down by one point 1 billion dollars or 275%

well volume during the

Gail sale Morgan work and press as the impact of pricing changes by market participants and an increase in loans retained on the balance sheet PlainsCapital Bank reduced margins by 30 basis points.

Well, we expecting on sale margins could be somewhat volatile world twenty20. We expect margins to move within a range of 310 to 320 basis points, assuming market conditions remain consistent throughout twenty-twenty other income increased by $20 driven primarily by improvements in sales and trading activities in both Capital markets instructor Advanced businesses at Hilltop Securities favorable market conditions resulted in a 22% increase instructor Finance mortgage-backed Securities volumes versus the prior-year. These businesses continue to realize the benefits of life since we've been making to improve are securitized products structuring sales and distribution capabilities since the third quarter of 2018 and why we believe these investments will continue to provide wage and benefits. It is important to recognize that these businesses can be volatile computer. A. As they are impacted by interest rates overall Market liquidity and production trends

Turn the Page not.

Not interested expenses increased from the same period in the prior year by $26 to $337 the growth in expenses versus the prior-year were driven by an increase in variable compensation of a boxing Thirty million dollars. It's Hilltop Securities and prime lending.

This increase in variable compensation was lengthy strong P Revenue growth in the quarter compared to the prior-year. Over the past 7 quarters. We have continued to make progress and aligning our businesses to AJ market conditions and driving efficiencies across the franchise through these efforts pay account non variable compensation professional service costs and marketing and development expenses continue to suck lower as we make progress against our efficiency initiatives during the fourth quarter Hilltop incurred five million dollars and cost related to the on goings for system improvements.

We are moving into the final stages of implementation of the new loan origination system at prime lending and are making significant progress on implementing Newport system at Hilltop Securities and the enterprise-wide account page them across Hilltop turning the page him.

Total average page if I loan through by 6% versus the fourth quarter 2018 as previously noted growth versus the same. The prior year was driven by growth our mortgage Warehouse lending business and growth real estate portfolio loan yields have declined throughout 2019, which is partially the result of low lower purchase Loan accretion. In addition to lower accretion yields has declined as the floating portfolio which represents 62% of the banks loans, excluding internal funding lines resets to lower Market rates further newly originated fixed-rate loans are lower than the ones they are replacing and was the case in the prior down recycle. We continue to have contractual re floors in our standard loan agreement.

It is a 12:31 2019 PlainsCapital had approximately 1.8 billion of commercial loans priced at their floors. All these floors can be renegotiated at renewals or other contractual. They provide some protection against lower Market rates over time.

Paige hello.

During the quarter net charge-off for me Lo Antiquated at one point three million dollars or a basis point to Total loans as noted during the third quarter and with the trend continuing into the fourth quarter. We are see deterioration in the energy portfolio as a result. We moved approximately Thirty million dollars of energy sector loans to criticize during the quarter as it relates to the two energy lending total driven to 12/31 were approximately $216 and total loans outstanding balances were approximately 2.2% of the bank's total loan HFI portfolio or a hundred fifty million dollars while the market for credit remains very competitive. We remain focused on proving growth managing our existing portfolio and executing within a moderate credit risk profile across Hilltop.

Turn the Page twelve fourth quarter average total deposit to approximately 8.9 billion and have increased by $525 billion or 6% versus the fourth quarter of 2018. Walker credit competitive pressure is intense. We remain focused on continuing to expand our deposit base with existing clients acquiring new clients and lowering overall deposit cost in the portfolio long as it's shown in the graph. The bank has been able to deliver growth and non-interest bearing deposits which increased by $209 billion or 8% versus the prior-year period on an ending balance basis.

moving to page thirteen

Thirty fourth quarter of 2019 Plains Capital Bank continue to demonstrate solid profitability generating $41 pre tax income during the quarter. The quarter's results reflect Thursday. It's a growth in national warehouse when they as well as solid expense reductions versus the prior-year further during the fourth quarter PlainsCapital retain approximately 100 million dollars of mortgage loans originated it primelending and may retain up to 5% of the total origination volume primelending during 2020.

They're twenty twenty or gets low retention levels will be determined through an ongoing review of the prevailing mortgage rates balance sheet position in Hilltop and our outlook for commercial loan growth.

Total non-interest expenses declined by five million dollars versus the prior-year. Driven by lower operating costs in the absence of one time before related expenses further. The fourth quarter wage does include approximately two million dollars of costs related to real estate actions aimed at reducing long-term cost across the footprint.

the focus of PlainsCapital

Will remain consistent provide a great service to our clients deliver profitable growth while maintaining a moderate risk profile and delivering positive operating leverage by balancing Revenue growth and expense wage. I'm moving the page fourteen primelending generated a pre-tax profit of eight point five million dollars for the fourth quarter or 2019 driven by strong origination volumes increased from the prior-year by 1.4 billion or 48% as noted earlier gain-on-sale margins compress during the fourth quarter. However, we do expect the organs will begin to recover off during twenty-twenty while overall logins were elevated in 2019. The focus on operating efficiencies has not waned as prime lending has maintained consistent rigor around Staffing and other than the oil and back office expenses across the platform.

Are focused on winning is to generate profitable mortgage volume continue to focus on operational efficiencies and execute a successful launch of our new mortgage loan origination system.

The page fifteen Hilltop Securities delivered a pre-tax profit of twenty four million dollars in the fourth quarter of 2019 during by solid execution in the structured finance and capital markets businesses, which have aggravated from both our ongoing investments in structuring sales and distribution and improve morale conditions while activity was strong the quarter results from both of these businesses can be volatile as wage rates spreads and volumes can change significantly from. A. Related to public banking net revenues grew by five million dollars versus the same. The prior year as we continue investing our money to support long-term growth by strategically hiring Bankers to support client expansion and acquisition.

Our Focus were Hilltop Securities is to grow profitable Revenue optimize our operating expenses manage marketing liquidity risk within a moderate risk profile and finalize the deployment of the new palm reading system.

Starting to page sixteen National lawyers recorded seven million dollars pre-tax profit for the quarter which reflected a lower frequency and severity of storm activity and claim related laws. Please note that you for 2018 results include the impact of hurricane Michael which contributed 6.2 million of losses during that.

related

So the transaction announced today at 12:31 2019 National Lloyds Book value equates to $114 Goodwill equated at twenty-four million dollars in Los Angeles equated a 3.5 million.

As noted we expect that this transaction will close or in the second quarter of 2020.

I'm moving to page 17.

Arcanine priorities for 2020 remain centered on executing our platform growth and efficiency initiatives delivering through to growth across our businesses while maintaining a moderate risk profile and delivering long-term value, please note the Outlook inclusion our release and comments below do not include any impact related to the sale of our insurance business that was announced previously. We expect the distribution actually will close during the second quarter and we will provide updates to our full-year Outlook in the quarterly review after closing.

For 2020 we expect full year average loan body grow between four and six percent this this growth reflects our expectation at national warehouse lending business loan balances declining as the mortgage Market stabilizes at lower origination levels full year average deposit growth Outlook at 46% is consistent with 2019 performance levels as we remain focused on growing low-cost deposits across our franchise.

We are moving away.

From the interest margin Outlook and focusing on stabilizing medication, given the current environment our net interest income Outlook reflects our current view that remains that rates remain relatively stable with current level and we are not projecting further movements by the Federal Reserve in twenty-twenty further as the balances of our previously purchased loan portfolios continue to decline we do expect purchase Accounting Office to decline 20 to 30% versus 2019 low during 2019 RP businesses delivered solid results as we were able to take advantage of strong market conditions long as we evaluate our fee businesses. We are expecting a lower level of mortgage-related activity during twenty-twenty as the mortgage Market stabilizes overall. We expect non-interest Revenue levels took about six to eight percent versus the 2019 recorded level.

As a result of the decline in non-interest revenues, we expect that 900 expenses will also decline versus the 2019 Levels by one to 3%

Includes the ongoing investments in our court system enhancements.

Well credit costs have remained low over the past few years. We are expecting that charge off to h i v to average age of a long to increase in 2022 between fifteen and twenty five basis points. This is an increase versus 2019 levels. We believe this continues to reflect a solid economy improving Credit Management across the hilltop portfolios Laughlin on January 1st, June 2020. We did adopt a new accounting standard for loan losses commonly referred to as Cecil. We're updating our range from potential Day One impact 282 $100 as noted previously. We are providing outlook on net charge-offs HFI loans and not provision expense in 2020. We do expect that the quarterly results of allowed for credit losses could provide a wide range of potential outcomes on a quarterly basis as macroeconomic Loan prepayment in other key assumptions or updated throughout the year.

operator that concludes

Prepared comments will turn the call over to you for the Q&A section of the call.

Thank you. We will now begin the question-and-answer session to ask a question. You may press star one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Brady gaily with KBW, please go ahead. Hey, good morning guys morning just to be clear about the 2020 outlook on slide 17 that does not include any of the impact of the sale the insurance company. That is correct.

Okay, and when do you guys expect to update the Outlook to be more in line with you know to see all the insurance company, you know, we are we are expecting a second quarter clothes of the transaction announced and once the transaction has closed in the quarterly update call after that. We will we will update pull your guys.

Okay.

And so I appreciate the math on the capital levels National Lloyds. It looks like you have about 86 and 1/2 million dollars million of tangible Capital there. So that that puts the tangible gain at about sixty three point five million so that that 63 and 1/2 million dollar gain is that taxed the we we well, we would push towards we've got a book gain. So you take the entire book value versus the the page understanding as acknowledged in the disclosure that we do have closing price adjustments that that could occur that said the book game. We do not expect ugh to be taxable.

The whole gang is the 150 - 214 bookbag the correct. So yeah, so the 36 million of booking not tax and wage and then the other you know, roughly Thirty million of gain would be taxed.

well

Oh, that's I mean, that's you're you're trying to subtract it from a tangible Book value number which is not you know, the Gap we have a stated Book value that includes a 27 million of Goodwill and intangible of $114. So our book game is difference between the purchase price of $150 minus the state of Book value of 114 month and uh, you know, given the tax situation and we kind of have a a range above and below book right but in this range, it's not taxed. It's not taxable transaction course. All right, so maybe that's a little simpler. What's the impact to tangible capital from this transaction? Sure. So with this we would expect it'll be a preview the tangible book value per share by 4%

And we think it's going to be deluded to earnings by 6%

and we think that it will be an increase Access Capital of $129.

Okay. All right. That that's helpful then how do you think about the buy back as it relates to that inflow of excess Capital but we're going to think about it. But right now, you know, I'm I'm very pleased with this transaction. I think it's great for both parties. I think we found the right buyer and a great team that can really take off the level that we frankly wanted to be able to and it's going to be great for the employees and and the future there and we're working to work hard with them. But we happened on our car with them over the next few months to get this closed cuz it's got to go through Texas Department of Insurance regulatory program.

and during that time we'll probably be thinking about you know, what what how does that

All right, and then finally for me, you know 2019 was a great year for the broker-dealer in the pretax. Margin pretty much doubled from 10% to 20% How do you think how do you think about the pre-owned? No, margin in the broker-dealer as we look into twenty-twenty. Well, I think it's similar to just kind of the broader guidance. We're trying to get out of the gates here is that we thought we had a tremendous a 2019 and there's a lot of work and a lot of credit that should be given to the organization for it. But there was a lot of mortgage Tailwinds too. So we walk in, I want to see a little cautious about that at this time. So it's now it's coming out of the gates being early. I would assume that you know, we're going to try to make about four hundred million dollars in that range and um kind of low to mid-teens, uh, pre-tax Market. All right. Great. Thanks guys.

Thank you.

Our next question comes from Michael rose with Raymond James, please. Go ahead.

Hey, good morning, guys. Thanks for taking my questions. Just following up on on your comments Jeremy. You know, you said diluted earnings by 6% Is that in the first year and I asked my question is, you know as relates to to the Outlook, right? So that the guidance that you've laid out implies negative operating leverage, which fully understand given the person's kind of increasing. The mortgage is not going to repeat we understand that but with that additional 6% solution to earnings from the sale National Lloyds, do you think you can actually generate positive operating leverage in 2021? And how does that relate to you know the goals that you've laid out basically asking how can you make up to earnings to get to the you know, eighty four million of improvements by the end of faith in our by the end of 2021? Thanks. Okay. Thanks. Well, first of all, that's an LTM number as far as the

As far as the CPS.

And that's you know based on fact that the company made $14 last year and then solid a basis would make you know, a little over two hundred million. So that's that bad boy is was poorly volatile and really profitable and and produced good margin. So we're going to be without those aren't and that's that's going to be just an artist a neat how that relates back to the platform and issue the 84 million still hold and um, you know, there might be some areas that age, you know, marginally don't have to have as much coverage but I I think that the 84 million still holds and we're going to continue to execute on

Okay, and then can you just kind of talk about the the timing of the sale? I mean it's it's been speculated that you guys have, you know looked at selling this on and off over the years, you know, the 36 million dollar booking seems to kind of match up with the the Cecil adjustment that you guys are expecting is it did that drive the decision to kind of Hit the bid here at this point. Thanks. We're not we're not that coordinated. You know, this has been something where we've you know, obviously we feel like this is not a core aspects of the long-term future. Um, we have really been trying to do a lot to improve it and put it in a good position, uh that it was attractive and and that's really what led to the time here. And I think we you know, always thought of the

You know if you find the right buyer it really take this.

So the next level would be great for everybody.

Okay, and then maybe finally for me if I take the loans held for investment average full year average growth Outlook and applies if I'm doing my math right kind of a low single-digit Thursday and held for investment growth rate. I guess. What's what's driving that Outlook? I thought it would have been you know stronger just given the you know, the relatively solid market dynamics and your foot print off. I think we're as we as we stated we're going to be prudent around commercial loan growth. We we do believe that continue to believe we're moving towards the the the end of this cycle and into the back portion of the cycle. So commercial loan growth will be will be a focus of hours. But we will we will be prudent around that the second piece is national warehouse lending, which we've stated took it outside Road in 2019. We do expect to decline in 2020 as we've noted in in our guidance across across-the-board. We do expect mortgage activity to decline

the more more

Normal level in the current environment. And then lastly we we do anticipate retaining, uh loans from the prime lending business as they as they originated them off balance sheet, but we will evaluate that as I noted in my comments, uh against our commercial loan Outlook as well as Market rates and return as well as balance sheet positioning. So that's our that's that's the way we think about it. Okay. Thanks for taking my questions. Thank you. Our next question comes from what Stephens please go ahead. Hey great job. Good morning. I wanted to follow up on the discussion around mortgage. And I think you know your expectations in the guidance for more which volume is to be down 5% to 10% in 2020 or 2019 and I get to the visibility is limited in the business, but are there any data points? You can provide to us more near-term other words. Are you already seen wage?

volume down 10%

In early twenties early nineteen or you just trying to give us a a conservative forecast for for slowing volumes sometime later in 2020.

Well, I think what we're we're expecting there is that we will the Market's going to return back to the normal seasonal Trend and again Q4 as we noted was yielded outsize outside performer are expecting kind of cue for 20 to return them analyzed levels. We're not we're not going to give kind of quarter-by-quarter guidance on mortgage. It can be volatile. Um, we we do acknowledge that the Ten Years here just in the month of January. So obviously that that'll move around that said the 10-year has been within the range, you know, a hundred and sixty two hundred basis points here over over the past couple of months of quarters. So again, we're not going to do quarterly guidance on it. But as we think about it, we view it as a more traditional bell-shaped curve, uh Year, we're q1 and Q2 age or generally softer than Q2 and Q3. And we do expect that. We we received the market was just stronger last year than we expect this year to be and again by the 5 to 10% off.

right

Okay, got it and going back to the discussion around the bank retaining a portion of the mortgage loans from Prime will can you just review those numbers again that the retained in 2019 and and I think you said a hundred million dollars in the fourth quarter. And what was the expectation for twenty twenty and and also just reviewed the Strategic rationale behind this. Are you trying to protect against falling birth rates or is there something else beyond that what we just to be clear? We have retained loans from Prime for a number of years. So this is not a new strategy. I will say that the the volume of the retention is potentially increasing as I noted in my comments during Q4. We did retain about a hundred million dollars During the period and from a from a liability perspective. We are looking to retain up to 5% of crimes origination volume in 2020. Now the drivers of that would be the name.

Whether it be you know.

Hybrid arm product jumbo products 30-year product to the mixed will matter the the prevailing Market rates will also matter and and also our outlook for commercial growth. So as we think about it, we are looking to position the balance sheet, uh-uh with a little more fixed rate exposure. Not not an overwhelming amount of fixed rate exposure, but a little more pictures of Bowser and we think this this is subjective helps us do that throughout twenty-twenty. But again will provide an update every quarter on on what was retained. But but again relative to Thursday is overall production, uh, we will be uh, only up to 5% so they will be selling 95% plus of their origination volume.

Okay, I got it. And then my last question, I guess with the pending sale of the insurance company is this signal anything? I'm trying to understand if we should interject that you're feeling better about your ability to pull excess Capital which is already robust and I think around a five hundred million dollars currently.

Yeah, let's not there's no exact signal. This is just you know something over time. We thought that wasn't really core. It doesn't have a business in the rule. Well as to really focus more on those three businesses and and grow them.

Okay. Thank you.

Our next question comes from Chris, Tony with compass point, please. Go ahead. Good morning everyone. Can you help me understand what the $45 million dollars a p p and our benefit means does that mean is that the total amount of benefit in the year or is that the end run rate cost am unclear. That's the year-end run-rate wage rate that did said of actions that have been executed to date.

All right. Can you help me understand your expense Guidance? Just if I take 5 to 10% down on Mortgage business and I just assumed the five or 10% decline on Thursday the variable mortgage comp in relation to lower production volume. It gets me to a 2% reduction in the overall, uh company expense base. I would think that there would be a year rear benefit. Um just roll for next year of actions that were completed throughout the year. So I'm kind of struggling with the expense gun. Yeah. So, uh the way that would think about it is first we are you know, as we needed one year into it through your program. And so we've got a a number of things consoles of things occurring number one is we have put systems in the service, uh and are starting to recognize the depreciation amortization related expenses related to those, um, while we're continuing to work through a cheating the benefits as designed. We also for 2020 expected the overall exposure.

It's all our new projects and programs.

France to be modestly higher than what you saw in 2019, which was you know, approximately $13. So by virtue of that those to you know, we are still making substantial investments in our deployments in twenty-twenty has as we guided we would be uh, and we expect that to happen from there. There's also with the mortgage with the mortgage business in the same thing potential re mixing of uh of our fee Revenue businesses and the declines and gain-on-sale in the mortgage business while Revenue can be coming down because those gain-on-sale mortgages suck your breasts and we've got it they will be compressed. Uh, we don't we don't um compensate in the mortgage business has on profitability but rather on production, so that will be uh a month overall compression. If you will from up from a revenue vs. Expense basis, and then lastly we've got, you know, the the traditional head winds of inflationary related cost in our business office.

That we are also recognized.

Rising in 2020 both in terms of compensation expense as well as real estate other inflationary costs that you normally have so we factored all of those through including the bulbs expected spend related to our to the ongoing deployment of our court systems. And that's how the 1-2-3 was derived.

All right, that makes sense and I can you give can you give us any update on how you think the Cadence of reels realizing the remaining the remaining TV in our benefit will happen if it's is it all 2020 base? Is that all back loaded? I'm sorry. I mean 2021 is it all back load in 2021 just any type of idea of kind of the promotion you expect without, you know, without giving you kind of quarter-by-quarter the way to think about it a large portion of the remaining benefit is tied to the deployment of these remaining core systems. And that is the final point of our loan origination system, which is Jeremy mentioned is well underway in that in that process the deployment of our system operating platform at the bankers business, which we do expect will occur during 2020. And then the final deployment of our accounting platform across Hilltop which which will in Earnest go through out the year 2012.

in 2/21 as

For the matter. So those large expense pools and savings will be will be tied directly to the final deployments of of the platforms. But uh from our perspective we are well well underway and making really good progress and getting those deployed and then you know, there will be modest actions taken throughout the year twenty-twenty to continue to improve our run rates and we'll capture those and try to try to present those as they occur.

All right. Thank you. Thank you. Our next question comes from Michael Young with SunTrust, please. Go ahead.

Hey, good morning. Everyone morning wanted to ask a couple of quick follow-ups on the insurance business. Just one are there any you know, God will relationships from the insurance business to any other businesses or you know, even the corporate and other segment where you know, we might see impacts outside of just the insurance segment. I'm not really you know, it being a standalone Financial segment generally encompasses the costs related to that franchise.

Yep, and then second just given the timing of the deal closed that's usually kind of right around the the I guess peak of the storm season. Are there any you know, risk factors to closing or any adjustments that could happen as a result of you know, it being a better or worse storm season. Yeah, we're going to so we agreed on a price of $150,000 and then we are to deliver Seventy-Six million of tangible Book value and and to the extent there's more or less than than we retain that. So we make earnings will retain that dollar-for-dollar if we have formed a lost and we have that that liability.

Like I think what's important is week up until closing we're running this business is a business as usual matter and we have all the exposures that are commiserate with that.

Okay, thanks. And you know just as I think about kind of balance sheet growth holistically for the year. I mean is it still right to think of it and kind of that four to six percent range and then you know, I guess a derivative of that. I know, you know, obviously the warehouse balance is finished the year, you know much higher than normal and much higher seasonally and in 4q on an average box as well. So I'm just trying to think about total balance sheet growth next year with the size and sort of the the Cadence I guess of how that moves forward, you know, so I think we met a guy that we expect loans will be growing 46% However, kind of other assets on the balance sheet Securities portfolios, and the light we wouldn't expect to have the same growth rate. So, you know total assets would grow in the in the low single-digit range as a matter of kind of aggregate asset

Okay.

That's it for me. Thanks. Thank you. This concludes our question-and-answer session, and the conference is also now concluded. Thank you for attending today's presentation pack now disconnect. Thank you.