Q4 2020 Hilltop Holdings Inc Earnings Call
Good morning, and welcome to the Hilltop holdings fourth quarter and for 'twenty, and 'twenty earnings conference call and with cash.
Our disciplined and scoping and a listen only mode and you don't need assistance. Please sit on a conference specialist by pressing this Turkey, followed by C. L.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on attached on phone to withdraw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Erik Yohe. Please go ahead.
Thank you operator.
Before we get started please note that certain statements. During today's presentation that are not statements of historical fact.
<unk> statements concerning such items as our outlook business strategy future plans financial condition and allowance for credit losses, and the impact and potential impact of Covid, 19, and stock repurchases and dividends as well as such other items referenced and the breakfast on the presentation are forward looking state.
These statements are based on management's current expectations concerning future events and by their nature are subject to risks and uncertainties.
Our actual results capital liquidity and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our presentation and those included in our most recent annual report and quarterly report filed with the SEC.
Please note that the information presented is preliminary and based upon data and available at this time.
The extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information. Additionally.
Additionally, this presentation includes certain non-GAAP measures, including tangible common equity and tangible book value per share.
A reconciliation of these measures and the nearest GAAP measure maybe found in the appendix to this presentation, which is posted on our website at IR Hilltop Dash holdings.
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With that I would now like to turn the presentation over to President and CEO Jeremy Ford.
Thank you Eric and good morning.
For the fourth quarter 2020, hilltop reported net income of $116 million or $1 35 per diluted share.
Representing an increase from the fourth quarter 2019 of $67 million or 81 cents per diluted share.
This included a final settlement from the sale of National and the $3 7 million or five cents per diluted share.
Return on average assets for the period was two eight per cent and return on average equity was 21 per cent.
Full year 2020, net income equated to $448 million or $5 per diluted share.
This was an increase from $225 million or $2.44 per diluted share and 2019.
Full year results reflect the discontinued operations and national life of $38 million.
The fourth quarter capped off a remarkable year of growth for the organization. We continue to capitalize on a tremendous mortgage market as originations for the quarter totaled $6 8 million and increased over prior year of $2 $4 billion.
Driven by PPP loan balances the bank's average loans for the fourth quarter increased 8% from prior year and average deposits grew by $2 3 billion or 26% from prior year as well.
Net revenues at the broker dealer increase for the same period by $37 million or 33%, primarily due to robust volumes and structured finance and public finance and fixed income business.
Our strong capital position and 2020 enabled us to distribute $241 million and both dividends and share repurchases. This includes the Dutch auction tender that was executed and the fourth quarter were hilltop paid $193 million to repurchase approximately 8 million share of common stock.
Yesterday, our board of directors declared a quarterly cash dividend of <unk> 12 per common share and increase of 33% from the prior quarter.
Dividend is payable on February 26, 2021.
During the period, we continue to support our impacted banking clients to the approval of Covid related loan modification.
The balance of total active deferrals as of December 31 was $241 million or excuse me $240 million down from $968 million at the end of the second quarter.
Our allowance for credit losses as of December 31 totaled $149 million or 2% of the bank's loan portfolio.
This reflects a reduction and the reserve balance of $6 $2 million from the third quarter, which was driven by fourth quarter pay offs lower than expected charge offs and a shift and the economic outlook.
2020 was a challenging year for all of US well I believe made us a stronger and better company.
I'm very proud of our teammates companywide and how they responded to take care of each other as well as our clients and the communities we serve.
At the onset of depending on our Treasury and capital markets teams immediately pulled together to manage the volatility which occurred and to ensure our businesses had ample liquidity and serve the needs of our clients.
As well the coordinated efforts of our technology property management and human resources groups enabled us to effectively transitioned 90% of our employees to a work from home model and less than 30 day.
Although the pandemic caused hilltop and changed the way we work it did not deter our company from making progress on large and complex initiative.
Also notable our team and plenty of capital Bank originated 2800, PPP loans and deferred loan payments and a few short months per their commercial and consumer clients that were most impacted by depend on it.
Their efforts and partnering and supporting our bank clients highlights and cultural claims capital and the quality of our bankers.
2020 was also a record breaking year for their company and prime lending funded a record $23 billion and mortgage loans hilltop securities generated record net revenues of $530 million and hilltop produce record earnings and.
Accordingly, we do not expect these favorable market conditions to continue indefinitely.
And we embarked upon in 2021, we believe that hilltop is well positioned with established businesses and synchronized leadership and substantial capital.
Moving to slide four.
Finance capital Bank on a solid quarter with pretax income of $59 million as a negative provision of $3 $6 million was reported.
Net interest income increased $11 million from Q4, 2019, driven by fees and interest income from PPP loans.
Net interest margin was three three and 7% during the period, a linked quarter increase of 35 basis points and.
As the bank utilized cash proceeds from TTC and loan pay offs to reduce sweep deposits and hilltop securities.
I'm learning had an outstanding fourth quarter and generated pretax income of $84 million and increase of $76 million from Q4 2019.
And was driven by a 54% increase and origination volume and a gain on sale margin of 448 basis points.
Strong finish to an incredible year for the prime lending team.
Hilltop Securities and also had an outstanding quarter with pretax income of $34 million.
And increase of $10 million or 42% from the fourth quarter of 2019.
Structured finance grew net revenue by 92% on Q4, 2019, driven by a 57% increase and TBA lock on.
Public Finance services grew net revenue by 32% and fixed income services grew net revenue by 45% book driven by robust volume improved capabilities and key talent additions.
Moving to slide five.
And late 2017, we announced a broad set of initiatives to enhance our platform and streamline operations with a goal of lowering operating costs and building a foundation for future growth.
Our goal was to deliver $84 million and run rate P. P and art benefits by the end of 2021.
Through the end of 2020, we have completed projects that have resulted in $90 million and revenue and cost benefits.
This program was centered around three main areas enhanced business operations and strategic sourcing and shared services.
And the first area of enhanced business operations, we streamline front and operations through the replacement of legacy core system with the Blue Sage loan origination system, and prime lending and with the finance platform and hilltop Securities.
Also we improve the alignment of leadership and management through effecting succession plan and making certain large organizational changes such as the prime lending staff reorganization in 2018, and and restructuring and hilltop first organization and 2019.
Additionally, we established the agency MBS group and Hilltop Securities, which is the securitized product platform that complements our mortgage origination business.
And the second area of strategic sourcing the focus was to take advantage of the size of our organization in order to improve our pricing and discounts with all vendors.
In order to do this we implemented and enterprise contracting and procurement platform to better enable the organization to work effectively and contracts and across vendors.
A single travel and entertainment platform to aggregate data and leverage our scale for better rates and discounts and a consolidation of supplier sourcing, which includes hardware and software and janitorial services and office supply.
Notably strategic sourcing has been a huge effort and has shown very positive results and we were.
We'll continue to leverage as we negotiate contracts.
The focus of the third and last area was to build a shared services organization to support the entire enterprise.
We have redundancy across the organization and most functional department and through the centralization of certain responsibilities, we now have better controls communication and run rate cost.
Most importantly, our shared services organization has positioned us for enhanced scalability to support both organic and acquisitive growth.
With that I will now turn the presentation over to will to talk through the financials.
Thank you Jeremy I'll start on page six.
As Jeremy discussed for the fourth quarter of 2020 Hilltop reported consolidated net income attributable to common stockholders of $116 million equating to $1 35 per diluted share.
Hilltop produced income from continuing operations of $113 million or $1 30 per diluted share during the fourth quarter book.
Full year of 2020 Hilltop reported consolidated net income attributable to common stockholders of $448 million were $5 one per diluted share.
Income from continuing operations available to common stockholders, equating to $409 million or $4.59 per diluted share.
Earnings per share from continuing operations effectively doubled from $2 38 reported in 2019.
During the fourth quarter revenue related to purchase accounting was $5 $7 million and expenses were $1 $4 million, resulting on a net purchase accounting pre tax impact of $4 3 million per quarter.
And the current period, the purchase accounting expenses largely represent amortization on the deposit and other intangible assets related to prior acquisitions.
During the fourth quarter the provision for loan losses reported a net recovery of $3 5 million and included $2 $7 million of net charge offs.
The impacts of the improvements and the macroeconomic assumptions as well as client Paydowns and payoffs yielded a net reduction and the allowance for loan losses during the quarter.
As a result of the earnings performance and capital actions taken in 2020 hilltop year and capital ratios remained strong.
And equity tier one of $18, 97% and a tier one leverage ratio of $12 64%.
Moving to page seven.
As shown here on page seven hilltop allowance for credit losses declined by $6 million versus the third quarter of 2020.
As modest improvements and the macroeconomic outlook versus the prior quarter and lower specific reserves, resulting from pay offs, whereby clients were able to refinance our debt and other institutions lowered our at risk assets.
Youre and allowance for credit losses of 149 million yards and ACL to bank loans <unk> ratio of two 5% as of year end 2020.
Of note, we continue to believe that the allowance for credit losses could be ball and the changes and the allowance will be driven by net loan growth and the portfolio credit migration and changes to the macroeconomic outlook over time.
I'm turning to page eight.
Net interest income and the fourth quarter equated to $107 million, including $6 3 million of PPP origination fees and the previously referenced purchase accounting accretion.
Versus the prior year quarter net interest income decreased by $3 4 million or 3%.
Net interest margin, which declined versus the prior year period increased versus the third quarter of 2020 by 15 basis points driven by the recognition of deferred PPP origination fees and a decline and our cash balances of approximately $500 million.
Loan yields remained pressured and deposit costs remained somewhat elevated as a result of higher broker deposits and CD balance.
During the quarter low originations, including credit renewals maintain and average book yield of 397%, which is lower than the third quarter of 2020 originations by approximately seven basis points.
Total interest bearing deposit costs declined by five basis points and the quarter as we continue to lower customer deposit rates and return broker deposits where appropriate.
We expect that net interest income and net interest margin will remain pressured as overall market rates remain low and putting pressure on loan held for sale yields and new production yields across the commercial portfolio and the competition could remain aggressive over the coming quarters.
I'm moving to page nine.
Total noninterest income for the fourth quarter of 2020 equated to $448 million.
Four quarter mortgage related income and fees increased by $140 million versus the fourth quarter of 2019.
During the fourth quarter of 2020, the environment and mortgage banking remained strong and our business outperformed our expectations in terms of origination volumes, principally driven by lower mortgage rates, which drove improved demand for both refinance and purchase mortgages.
Versus the prior year quarter purchase mortgages increased by $725 million or 25% and refinance volumes improved substantially increasing by $1 7 billion or 116%.
While volume during the quarter were very strong gain on sale margins also improved by eight basis points to 448 basis points versus the third quarter of 2020.
While we expect gain on sale margins could be somewhat volatile during 2021.
We expect full year average margins to move their range of 360 to 385 basis points contingent on market conditions.
Other income increased by $31 $5 million, driven primarily by improvements in sales and trading activities and both capital markets and structured finance businesses and hilltop securities.
Favorable market conditions resulted in a 57% increase and TBA lock volumes versus the prior year period.
These businesses continue to realize the benefits and the investments we have been making to improve our securitized products structuring sales and distribution capabilities since the third quarter of 2018 and while we believe these investments will continue to provide ongoing benefits. It is important to recognize these business as can be volatile from period to period.
And as they are impacted by interest rates overall market liquidity and production trends.
Turning to page 10.
Noninterest expenses increased from the same period and the prior year by 94 million.
The $402 million.
The growth and expenses versus the prior year were driven by an increase and variable compensation of approximately $79 million and hilltop securities and per on women.
This increase and variable compensation was linked to strong fee revenue growth and the quarter compared to the prior year period.
Looking forward, we expect that in 2021, our revenues will decline from the record levels of 2020, which will put pressure on our efficiency ratio.
That said, we remain focused on continuous improvement leveraging the investments we've made over the last few years to aggressively manage fixed call. While we continue to further streamline our businesses and accelerate our digital transformation.
Turning to page 11.
Total average <unk> loans grew by 7% versus the fourth quarter of 2019.
Gross versus the same period and the prior year was driven by growth and PPP loans, principally during the second quarter.
And the period banking loans remained stable versus the prior year period as commercial loan demand has remained tepid throughout the pandemic.
As we noted on our prior earnings call. We are planning to retain between 30 and $50 million per month of consumer mortgage loans originated and prime lending on.
Offset demand from our commercial clients.
Subject to market conditions.
During the fourth quarter of 2020 prime lending locked approximately $145 million of loans to be delivered to plains capital over the coming months. These.
And these loans had an average yield and $2 seven 9% and.
And average FICO and LTV of 780, and 62% respectively.
Moving to page 12.
And this data highlights the ongoing work or by gain credit teams have been doing to support our clients throughout this pandemic.
And as noted as of 12, 31, 2020, hilltop had approximately $240 million of loans on an active deferral program.
This represents a decline of 75% from the active deferrals and 630.
In total this portfolio of loans carries on allowance for credit losses of 17, 3% and is concentrated and our hotel and restaurant portfolio.
It is important to note that we are managing this portfolio of clients and exposure consistent with our existing credit policies.
And as a result during the third and fourth quarters of 2020, the credit ratings of these clients were reviewed and in many cases were adjusted to reflect the current financial situation for each of these borrowers.
As a result of the $240 million loans on active deferral 202 million are currently rated as criticized loans.
We remain focused on supporting our clients through the challenging times, while continuing to protect the bank capital.
Turning to page 13.
During the quarter net charge offs equated to $2 7 million or 15 basis points, a totally just by low.
And as shown on the graph the bottom right of the page the allowance for credit loss coverage at the bank ended 2000, 22.5%, including both mortgage warehouse lending as well as PPP loans.
We continue to believe that both mortgage warehouse lending as well as our PPP loans will maintain lower loss content over time.
Excluding mortgage warehouse and PPP loans, the banks allowance for credit loss to low <unk> ratio equates to $2 four 8%.
Turning to page 14.
Fourth quarter average total deposits were approximately $11 2 billion and have increased by $2 3 billion or 26% versus the fourth quarter of 2019.
Throughout the pandemic, we've continued to experience abnormally strong deposit flows from our customers driven by government stimulus efforts and shifting client behaviors as customers remain cautious during these challenging times.
During the fourth quarter and customer deposits grew by approximately $392 million from 930.
2020 on.
Offsetting this growth and the fourth quarter was the return of an additional $200 million and hilltop security sweep deposits and the maturity of $272 million of broker deposits, which we have and will continue to allow them to order all over the coming quarters.
And 31 hilltop.
<unk> maintained $731 million of broker deposits and maintained a blended yield of 44 basis points.
And these broker deposits and $469 million.
Will mature by 630 for 2021.
These maturing broker deposits and maintain and average yield of 40 basis points.
While deposit levels continue to remain elevated it should be noted that we remained focused on growing our client base and deepening wallet share through our treasury products and services.
Efforts have been successful in 2020, and we expect that they will continue to accelerate into 2021.
I'm moving to page 15.
During the fourth quarter of 2020 planes capital bank generated solid profitability and producing 59 million and pre tax income during the quarter.
Bank benefited benefited from the previously mentioned provision for credit losses, recapture and three 5 million and the recognition of $6 $3 million and PPP fees and non.
Noninterest expenses and the quarter reflect write downs on certain Oreo assets of $3 8 million, which did cause the efficiency ratio to drift higher this period.
This year has presented a number of challenges for claims capital and we're very pleased with the resiliency of our clients and teammates across the business as Jeremy mentioned the team delivered for our clients by providing approximately 2800, PPP loans and 2020 and deferring payments for those customers that have been most impacted by the pandemic.
Work this year demonstrates a solid balance of customer support while protecting the principles of the bank and hilltop and.
In 2021, and the team remains focused on providing great service to our clients and delivering profitable growth, while maintaining a moderate risk profile.
I'm moving to page 16.
Prime lending generated a pretax profit of $84 million for the fourth quarter of 2020, driven by strong origination volumes that increased from the prior year by $2 4 billion or 54%.
As noted earlier gain on sale margins expanded during the fourth quarter.
In previous calls we discussed the retention.
Msr's during the second and third quarters. This continued during the fourth quarter and the MSR assets ended the year with a value of $144 million.
Throughout the second half of 'twenty and 'twenty, we reduced our retention percentage of servicing rights on sold loans to 57%.
We expect to continue retaining servicing assets at these levels. During the first half of 2021 subject to market conditions, and we will be looking to potentially execute bulk sales throughout the year if market participation is robust.
2020 reflects a record year for prime lending by almost all measures.
We're grateful for the teamwork and effort put forth across hilltop and prime lending to deliver these outstanding results for our customers and our company and.
In 2021 Prime lending will remain focused on generating profitable mortgage volume and continuing to execute on delivering operational efficiencies across the business.
Moving to page 17.
You'll stop securities delivered a pre tax profit of 34 million and the fourth quarter of 2020, driven by solid execution and structured finance capital markets and public finance businesses, which have benefited from our ongoing investments and talent and infrastructure over the last few years and a constructive market backdrop while.
And while activity was strong and the quarter, we continue to execute on our growth plan investing and bankers and sales professionals across the business to support additional product delivery and enhance our product offerings and deliver our differentiated solutions debt to municipalities across the country.
And this is highlighted in the fourth quarter and public finance services, which was able to deliver net revenue growth of $8 million or 32% versus same period and the prior year, even as overall market issuance volumes decline.
The team and hilltop Securities is focused on delivering profitable revenue growth optimizing operating expenses, while managing market and liquidity risks within a moderate risk profile.
Turning to page 17.
As a result of the team's work over the past few years, we were well positioned to take advantage of the opportunities the market presented by leveraging our franchise.
And our enhanced infrastructure to serve customers, while keeping our teams and clients as safe as possible and very challenging times and circumstances and 2020.
In 2021, we remain focused on remaining nimble as the pandemic evolves to ensure the safety of our teammates and our clients.
Further our financial priorities for 2021 remains centered on delivering great customer service to our clients, attracting new customers to our franchise and supporting the communities, where we serve and maintaining a moderate risk profile and delivering long term shareholder value.
Given the current uncertainties and the marketplace, we are not providing specific financial guidance, but we are continuing to provide commentary as to our most current outlook for 2021 with the understanding of the business environment, including the impact of the pandemic could remain volatile throughout the year that said, we will continue to provide further updates during our future quarterly call.
<unk>.
Operator that concludes our prepared comments and we will turn the call back to you for the Q&A section of the call.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
And using a speakerphone please pick up your handset before pressing the keys.
Any time your question has been interest and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Matt Olney with Stephens, Inc. Please go ahead.
Great. Thanks, Good morning, guys.
And again.
I wanted to start on on the mortgage you guys gave us some guidance for 2021 and I fully appreciate it's not easy to give any kind of forward guidance and the mortgage business.
And I have to kind of hear how you arrived at some of the guidance, especially that 17 billion and at $20 billion guidance range for originations and love to hear kind of how you're thinking about that and and how you guys rabbit debt.
Yes, so we you know.
We obviously evaluate a number of market outlooks are the M b, a and other kind of industry perspective.
And obviously, we think.
You know the market for refinance will be will be somewhat challenged but we also think our business model, which is geared and oriented towards.
Purchase mortgage volume will continue to thrive and grow in 2021, and so as a result of that.
We we do believe.
We are positioned to kind of outperform what we last outlook. We saw the market was expecting about a 26% pullback and.
And we believe our model is somewhat position to outperform that but we recognize.
As you noted earlier that the volatility and the mortgage market can be can be significant. So we tried to provide a range. There that provide some perspective on what we think the most likely outcomes are but we'll provide those updates on a quarterly basis as well.
Okay, that's helpful and well and then on the same thing on the gain on sale margins like the guidance you gave the 363 85.
Any color on what Youre seeing the first few weeks of the year and and should we assume that that would start at the higher end of the range and can I move down throughout the year and how you're thinking about that.
I think that's I think that's right. We are the way we are evaluating us.
First the first part of the year reported a 2021.
You know seasonally has been has been stronger than you would've otherwise expected it might but.
But for the fourth quarter.
You know the peak that we believe the peak day for the gain on sale peaked at 448 basis points, we do expect that will trend down through the year.
To a more normalized level again, we think the first quarter remains maybe a little stronger and then it then it just continues to kind of roll down, but we do think the full year average will be and the range of $3 60 to 385.
The way you described the volume that's a shock.
And that kind of thinking about volume for the year as well.
Okay.
And then the last question on the mortgage front can you provide us with what the interest rate lock commitments were and in the fourth quarter on how that can be volatile quarter to quarter. I think it was around $22 million and the third quarter I didn't see and any of the materials last night.
Yeah, it'll debt that will that quarterly number will come out and indicate which we'll file in February. So I don't want to I don't want to get ahead of the kit.
Okay. Thanks, guys. Thank you.
The next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, guys, how are you and.
And Michael Moore.
And so obviously you guys did some some capital actions this past quarter with the with the Dutch auction and announced the buyback but capital levels are still.
Pretty robust here.
I know you guys have talked about M&A and the past the multiple has certainly improved can you just give us and update on your strategic capital priorities.
And then if.
And you'd be willing to kind of talk about where you know capital capital levels on a normalized environment.
Try and for you guys. Thanks.
Okay. Thanks, Michael and you know I think.
And we did have a I think on a strong quarter as far as capital is concerned with the tender offer and.
Also on increasing the dividend by 30%.
We will be looking for M&A opportunities and 2021 I think.
And really wanted to seek out the right partner and so on and it was really on value us and a good buyer.
Given our business model and and.
Insider ownership and and.
Liquidity and our stock.
And we'll hope to do that and.
And that's all I can say right now other than we authorized a $75 million share repurchase again as well.
Just a follow up on on M&A, what what is kind of our optimal deal that you guys would look at whether it's size or what it would deliver in terms of.
Accretion and I know you guys have done, but I think the last day, you did was fairly small and the Dallas market.
And the Houston market excuse me, but you.
And what what are kind of the priorities at this point given what we're looking at from the from the macro.
I think the biggest thing is just to find the right strategic fit.
For us so that's going to be a commercial bank and.
Probably a quality institution and Texas.
And that's really what our priority will be.
Okay, and then maybe finally for me.
The deposit costs have continued to come down.
How much how.
And how much room do you think you have do you have any big maturities coming up just any color you give there would be it would be great. Thanks.
I think you know.
We're going to continue to kind.
And are worked through that.
And the context of just moving moving them down as we think is prudent and we will expect from a from an overall net interest income perspective, as I mentioned there'll be a fair number of.
Broker deposit I'd say maturities through the first half of the year that will improve.
Net interest income, but and that's not necessarily NIM in that regard our view on deposit cost is where our CD costs. They will mature and continue to reset at lower levels, but that happens over the next 12 to 18 months.
It's going to slightly up and be a slow slog lower but nonetheless, we do see we do see deposit rate moving lower overtime.
Great. Thanks for taking all my questions.
And next question comes from <unk>, Li with Keybanc capital. Please go ahead.
Hey, good morning, guys.
Good morning.
So your outlook called for non variable expenses to remain stable and I just wanted to clarify if that was stable from the fourth quarter run rate or if that's looking at full year, 'twenty and 'twenty non variable expenses.
That's more of a comparative to the full year, so stable with 2020 aggregate.
Okay. That's helpful. And then one more on expenses, I think and you're earning deck, you've caught and one time professional fees incurred during the quarter with the Dutch auction and the systems conversion of <unk>.
Judy I was wondering if you have the totals of bids on expenses.
About $3 $5 million.
Okay. That's helpful. On and then last for me you'll note that you expect net charge offs to pick up and the back half of 2021 I was wondering if you could provide an update.
Just on your hotel and restaurant portfolio and specifically on those loans that are still on deferral.
Well the I mean.
The loans that are still on deferral as you can as you can see.
Remained remains the preponderance of those remain kind of hotel and restaurant and.
Let me I didn't take the question.
Yeah, just hoping to get them yeah.
Yeah, I was just hoping to get some color on on those two buckets and the deferral of do you expect you know Archie.
Occupancy rate to pick up and on do you think they're trending and the right direction.
I think what we're seeing is certainly from June until the end of the year. We saw some improvement some of its seasonal some of it's a quarter of the year.
On the hotel, the wholesale which alere and we're still continuing to see.
Vacancy rates well in excess of where they would where they would have otherwise expected and would be but also.
Higher than they are in terms of breakeven per month from a cash flow perspective, so we're continuing to see cash flow challenges and the and the hotel space I think the restaurant businesses are holding up a little better I think they've been able to be more nimble.
And how they evolve their overall operating model to two.
To address the challenges of the pandemic and some of the restrictions have been put in place.
And our and are starting to move a little closer to I'd say cash flow neutral or breakeven over the over the next couple of couple of quarters.
But the hotel and are continuing to see while modest improvement I would tell you.
Utilization rates that are below book.
And though the levels required to kind of reach profitability.
Got it that's good color thanks, guys.
Thank you.
The next question comes from Michael Young with tourists Securities. Please go ahead.
Hey, good morning, Thanks for taking the question wanted to start just on the kind of overall pp and our improvement plan and.
Jeremy could you just you know maybe maybe back up for us and and give US an overview of kind of where that sets you up and what.
I would kind of be additional.
Product enhancements or services that you felt like you guys can offer now or can you manage the business much better.
With everything kind of more consolidated on one system and general Ledger et cetera, and just any of the benefits you can kind of walk through would be helpful.
Well I think that 2020 and really showcases.
The benefits of the programs that we've put in place and then a lot of ways and we're really fortunate to have done it before COVID-19 and they make a hit.
And because we were.
We're really able to to work cohesively as one organization.
And and you can see just over the last three years and efficiency gains.
And also just underlying all the numbers and provide a lot of a lot of.
Economic support for us.
And but I do think at this point you know when we've gotten the efficiency and we've gotten the operating leverage we have a relative organization and team.
So we got to work on finding ways.
To grow better together and amongst and company.
Okay and does that does it give you any more confidence and maybe grow and you're scaling certain businesses or as you kind of proceed with potential M&A.
The a better more fruitful processor can you assume higher cost savings and you know anything like that that would be strategic would be helpful to hear about.
Absolutely I think that all those are correct I think that.
We've got a holding company that can really.
Provide and shared services model for.
A larger enterprise and it's very scalable.
And I think if you just see.
And here, what's going on and hilltop securities Prime lending and and even at the bank and just.
And proved capabilities a lot of talent additions.
All the systems implementations.
There's a lot of improvement and and you know a lot of confidence and Walmart building.
Yes.
And Michael just makes sense.
Michael I'll just add just a couple of examples that we put forward and Jeremy mentioned, the structured finance group at Hilltop Securities just and the last couple of years, we launched national warehouse lending at the bank and that that business has clearly emerged profitable the treasury services group at the bank.
Also a group that has.
And it's been around a long time, but we've continued to make investments and growth there and I think it's worth noting that we saw growth and treasury fees gross fees in 2000, and 'twenty by about 9% and a pretty challenging operating year for one of our clients. So to the point there Jeremy point, we've been making strategic investments and improving our overall.
Platform.
But these businesses are starting.
And have already started to demonstrate growth and enhanced profitability just given given what we've been able to do last couple of years just for some tangible example.
Yeah, that's great and I appreciate the extra color and I wanted to actually follow up on the structured finance business. Obviously it had a very strong year in 2020, given kind of the mortgage origination volume.
Purchase volume was supposed to be up next year and I assume that's where most of that structured finance volume is related to so should we expect that to be maybe stable at least year over year or any other color you can provide on that line item would be helpful.
And I think that I mean high level, and then jump and whereby they're going to be challenging for that to be.
And as constructive as it was in 2020 and there was a.
Strawberry.
And we still think it's going to be very strong in 2021, it was very strong and 2019.
And we look at.
Yeah.
On the first time homebuyer market and a very tight inventory and which is a challenge but will also provide.
Well.
And will support for the business and.
And there's a lot of investor demand for that and we've got an incredible team.
And it's really built that rate business here so.
We feel good about it and 2021.
And I think 2020 and was extraordinary.
Okay and last one.
For me just on the warehouse growth both from Prime lending in this new warehouse effort and that's not contemplated in the loan growth guidance. So I would assume we should expect incremental growth and volumes year over year or what do you think there'll be a decline in volumes related to interest lower mortgage activity year over year.
And your market share gain versus volume growth I guess.
Yes, I would.
And we would expect that.
The national warehouse lending business and mortgage mortgage warehouse lending business would would track with kind of industry level.
Production outlook that those businesses have a little higher percentage of refinance activity and prime lending goes on a on a on a core basis.
Mhm.
Okay, Great that's all for me.
Thanks.
This concludes our question and answer session.
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And there's also now conclude and thank you for attending today's conference you may now disconnect.
Okay.
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