Isabell Novakov - IR Jeremy Ford - President and Co-CEO Alan White - Vice Chairman and Co-CEO Will Furr - CFO.

Michael Young - SunTrust Brett Rabatin - Piper Jaffray Michael Rose - Raymond James.

Good morning, and welcome to the Hilltop Holdings' Q1 2018 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Isabell Novakov. Please go ahead..

Good morning. Joining me on the call are Jeremy Ford, President and Co-CEO; Alan White, Vice Chairman and Co-CEO, and Will Furr, CFO.

Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our business strategy, pending acquisition, financial condition and future plans 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 conditions may differ materially from these statements, due to a variety of factors, including the precautionary statements contained at the outset of this presentation and those included in our most recent annual report and quarterly reports filed with the SEC.

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.

A reconciliation of these measures to the nearest GAAP measure may be found in the appendix of this presentation, which is posted on our website at ir.hilltop-holdings.com. And now, I would like to hand the presentation over to Jeremy Ford..

Thank you, Isabell and good morning. For the first quarter of 2018, net income was $24.4 million or $0.25 per diluted share. While our mortgage and securities businesses were adversely impacted by market pressures this quarter, we are very pleased with the performance that our banking franchise delivered.

Year-over-year, our core loan portfolio grew by 7% and total deposits grew by 9%, which supported a 12% increase in net interest income for Hilltop. Higher short term interest rates benefited our retail, clearing and securities lending businesses in the quarter, generating a 30% increase in net revenues.

Non-interest expense decreased 20.5 million or 6% versus Q4 2017 and 12.3 million or 4% versus Q1, 2017, driven by lower loan losses, excuse me, lower losses in the insurance business and reduced compensation expense in the securities business from lower revenues. Delivering value to our shareholders remains a top priority.

During the first quarter, Hilltop returned 8.4 million to shareholders through dividends and share repurchases. We also announced the execution of a definitive agreement to acquire the The Bank of River Oaks and are very excited about accelerating our growth efforts in the robust Houston market through that franchise.

Additionally, Hilltop's Board of Directors declared a quarterly cash dividend of $0.07 per common share, payable on May 31, 2018.

This quarter highlighted our emphasis on risk management, as non-performing assets trended down for the third consecutive quarter to $42.2 million and the bank successfully recovered 1.9 million from a previously charged off commercial loan as well the insurance business recorded a loss and LAE ratio of 45.3% for the first quarter, down from 60% during Q1, 2017.

Moving to slide 4, Hilltop benefited from the strength of our cornerstone entity, PlainsCapital Bank, which delivered a 22% increase in pretax income to $39 million, resulting from a favorable net interest margin of 4.15% and healthy asset quality.

Although mortgage origination volumes increased by 5% from the prior year to 3 billion, tightening secondary market spreads led to a pretax loss of $3 million for prime lending.

Hilltop Securities produced a decline in pretax income to $4 million, largely driven by lower volumes and spreads in structured finance, volatility in the capital markets fixed income portfolio and a decrease in public finance offerings, as many issuers accelerated their planned debt raises into Q4 2017, which was prior to the enactment of the tax act.

Finally, National Lloyds experienced low storm losses, which is in line with seasonal expectations and drove its $5 million of pretax income. Notably, the second quarter typically experiences the highest frequency of storms. I will now turn the presentation over to Will to walk through the financial..

Thank you, Jeremy. I'll start on page 5. Hilltop's net income for the first quarter equated to $24.4 million, a decrease from the first quarter of 2017 of $2 million. As a result of the enactment of the tax act in Q4 2017, the GAAP effective tax rate was 23.3% for the first quarter of 2018 versus 36.4% in the same period prior year.

We expected the full-year GAAP effective tax rate will be between 23% and 25% with variability driven by the impact of state taxes throughout the year. For the first quarter of 2018, purchase accounting positively impacted pretax income by $3.9 million.

The positive impact, net impact of these items has declined by approximately $1 million from the prior year and $2.5 million from the prior quarter. This decline from the prior year is as expected and the results were at the low end of our estimated range of $4 million to $6 million of pretax contribution per quarter for 2018.

Hilltop's 91% efficiency ratio for the period was primarily impacted by a decrease in non-interest income within our mortgage segment, offset by modest improvements in non-interest expense.

As Jeremy mentioned, non-interest expenses improved year-over-year by $12 million, driven by lower discretionary incentive compensation and lower insurance related losses. Hilltop's capital position remains strong, with a period in common equity tier 1 ratio of 18.6% and a tier 1 leverage ratio of 13.26%.

Of note, during the first quarter, we repurchased approximately 68,000 shares. We do expect to resume a higher level of repurchase activity during the second quarter, notwithstanding any significant market shifts. Moving to page six, net interest margin equated to 3.52% in the first quarter of 2018.

The impact of purchase accounting accretion included in the net interest margin equates to 36 basis points for the quarter. The pre-purchase accounting taxable equivalent net interest margin equated to 3.17% for the quarter, an increase of 17 basis points from the first quarter of 2017.

The resulting increase in pre-purchase accounting net interest margin is driven by higher asset yields on both loans and securities coupled with the ongoing management of deposit costs, as we move through this interest rate cycle.

Related to deposit costs, from December of 2015, our total deposit beta is approximately 21% versus our through the cycle model beta levels of 50% to 60%. The market is getting more competitive as rates move higher and we expect the deposit betas will increase towards or through the cycle levels over time.

We remain focused on growing core deposits and managing our overall funding cost aggressively as the yield curve has continued to flat. Given the 25 basis point rate increase that occurred during March, we are revising our pre-purchases accounting taxable equivalent net interest margin guidance to 3.2% plus or minus 3 basis points.

We will continue to revisit our assumptions based on the outcome of future federal rate - Federal Reserve rate movements and the impacts on our portfolios.

Over the past year, average earning assets have increased by approximately $1.1 billion, driven by a non-covered HFI bank loan growth of $352 million and growth in Hilltop's securities portfolio of $595 million, principally related to growth in mortgage backed securities at the bank and Hilltop securities. I'm moving to page 7.

Total noninterest income for the first quarter of 2018 equated to $235 million. First quarter mortgage related income and fees declined by $17 million versus the first quarter of 2017.

While mortgage origination volumes increased by $135 million, or 5% compared to Q1 2017, revenues declined as a result of a 32 basis point decline in secondary spreads, driven by tighter market pricing and ongoing competitive pressures.

We view the current economic backdrop and a relatively strong purchase market is constructive for volumes in the short and intermediate terms, however, higher long term rates coupled with aggressive price competition could result in ongoing pressure on secondary spreads in to the second and third quarters.

Securities related fees decreased versus the prior year by $4 million, primarily driven by lower public finance offerings. With the enactment of the tax act in Q4, 2017, some issuers did accelerate planned debt raises into the fourth quarter.

The decrease in other income of $12.9 million was primarily driven by lower production volumes and tighter market spreads in the structured finance business coupled with rate driven variability in the fixed income capital markets portfolio.

Further, the adoption of the new financial accounting standard regarding financial instruments reduced other income by $1.4 million in the quarter. Moving to page 8. Non-interest expenses improved from the first quarter of 2017 by $12 million or 4% to $308 million.

$6 million of the improvement came from lower loss and LAE expenses in the insurance business and storm frequency and severity were seasonally low. Compensation expenses were lower by $4.3 million during the period related to lower production revenues, driving lower commissions and discretionary incentives.

Of note, mortgage origination related variable compensation expenses are generally aligned with production volumes. Further, this quarter included $2.7 million in costs related to ongoing core system replacements and enhancements. Moving to page 9.

Total loans, including margin loans at Hilltop Securities and the covered loans housed within the bank grew by approximately $365 million or 6% versus the first quarter of 2017. This performance was in line with our full year expectations and we maintain a full year outlook of 6% to 8% total loan growth.

The modest decline in loan balances of 68 million on a linked quarter basis is consistent with the prior year results in the same period and is related to certain large real estate paydowns that occurred throughout the first quarter. Moving to page 10.

Total deposits are approximately $8 billion and have increased by 630 million or 9% versus the first quarter of '17 and were relatively stable versus the fourth quarter. Further, non-interest bearing deposits have increased by $154 million or 6% linked quarter, offset by a 4% decline in interest bearing deposits.

Non-interest bearing deposits represent 32% of total deposits, which has improved over time, reflecting our continued focus on growing and expanding customer relationships across our banking franchise.

Deposit costs have increased modestly with short term interest rates and we remain active in the market, testing rates and terms to ensure we remain competitive, while being very intentional in not leading the market in terms of higher rates. I'll now turn it to Alan to provide more insights on the business's performance..

Thank you, Will and good morning. I'll start with the bank and the bank had a good solid quarter. Our income before tax was up 22% to 39 million. Our ROA was 131. Our efficiency ratio was 61%. Our net interest margin was 415 and our net interest margin before purchase accounting was 365. That's 9 basis points up year-over-year.

We're really pleased with that as we continue to be able to control our loan costs and our deposit costs and we see that continuing to head in the right direction, continue to help our income. Our assets were 9.3 billion. We had loan growth year-over-year of about 8%. First quarter was flat.

We had a lot of paydowns, but we still believe that throughout the year that we can get back to that 6% to 8% that we've been talking about, subject to being able to fund some additional credits and subject to paydowns. The growth still continues to be focused in the commercial real estate area.

I would say that 80% of our new loans are commercial real estate. And a lot of those are construction loans and of course you'd expect that we make construction loans, it's going to go up and it's going to pay off and that's the reason you do it. So that's why you see these large payoffs. The C&I business is very competitive and very tough.

But we continue to fire our way through that and the entire market is tough. And we continue to keep our discipline in our lending standards and we're not going to be able to - we're not going to give that. Our deposit growth, excluding our broker dealer deposits, grew 9% year-over-year. We continue to focus on that and focus on licenses as Will said.

And then I think the most important thing here as far as the mind is concerned and I am is the credit quality. We have outstanding credit quality. Our NPAs continue to improve. We just don't see any material weakness in any particular area of our credit.

When you look at the hurricane activity, all activity, any of that, there's not anything there that we're concerned about.

Our strong markets are Dallas, Fort Worth, Austin, Lubbock and we're anxious to get Bank of River Oaks on our books, because we think that's going to be able to help us significantly in the Houston area and in our loan growth going forward. So we're looking forward to that, that transactions happening.

I think one thing too that goes along with them, loan quality. If you look year-over-year at our net charge offs, they are $3.8 million on the $6 billion portfolio and I guess I'm very proud of that and very proud of the people, what they've done and that's pretty remarkable on that size of the portfolio. I hope that resonates with you.

Prime lending, we had a pretty tough quarter at prime. However, when you compare it to last year, there were still some refi business going on and that helped us in that first quarter last year where we had really no refi business this quarter. So we ended up losing 2.7 million before tax.

It's not far off from what we were anticipating or budgeting, but nevertheless, it's not where we'd like to be. Our origination volume is, as Will said, was up 5%. Pretty interesting that the volumes are up, but the income isn't and our purchase percentage is round at about 80%.

I would tell you today it's around about 86% to 88% and that's significant and I'll tell you why here in a minute. Sales volume is pretty close to where it was last year and we're starting to seeing about $64 million worth of loans. When you look at the business itself, where we really got hurt is the gain on sale.

Starting in October, it really got competitive as far as the marketplace on gain on sale and I think you can tribute this to two things.

One, people trying to stay in the business that were not in the purchase business and really started cutting margins to be able to make deals, and then, we began to see the ten year note rise - the interest rates rise, so that had some effect on it too. That has continued through the first quarter. That has affected us significantly.

We had a 32 basis point drop in our gain on sale, which is a significant figure and that's caused the reason we did have a loss.

Now as we go into the second quarter, we're still seeing that, but we're hoping as that purchase market gets stronger and gets close to 100%, you're going to see the people that were not in that business are going to fall out and we hope as that happens, you're going to see them fall out and then we hope maybe the market will start to turn back where there will be a better gain on sale as we go forward.

However, there are some obstacles there. The economy is going to have to do well and it's going to have to be able to withstand the continued rise in interest rates that the Fed products. So we're going to watch that very closely. First quarter, okay, we are already there.

Second quarter probably is going to be softer than we want it and then we'll see what's going to happen in third and fourth quarters as what I said with the purchase volume.

So the mortgage business is going to be a tough market this year, but we are poised and in the right position to be able to handle that and we continue to focus on our purchase volume.

Our actual market percentage actually grew about 8 basis points, so we're pleased with that, so we're getting a bigger share of the market and we hope to be able to continue that. At the broker dealer, it was a tough quarter.

Part of it's related to the fact that the Tax Act, especially as far as it comes to public banking, a lot of the deals people did at the end of the year and didn't do in the first quarter, but traditionally, the first quarter isn't as strong and it gets stronger for the rest of the year, but that was off 31% and that's pretty much what the national average is and that hit our bottom line.

Capital markets continues to struggle. One of the reasons is, we don't have a lot of product right now. When you don't do a lot of public finance, you don't have a lot of the municipal bonds and stuff that you can actually use for the capital markets sector.

So we [indiscernible] and then the one that hurt us probably the most that we've been very involved has been the structured finance and that deals back with the mortgage business and we've done a lot of business there. I think we'll see a stronger recovery in the second quarter on structured finance and I believe that will come back.

None of these things, we can't come back from. None of these things, we can't make up ground for as we go through the year. Retail was profitable and better than last year. Clearing is a lot better than last year. Security lending is better than last year and of course with the rising interest rates in our cash management business, that really helps us.

So we've got some good things going on. We've got some things we've got to improve and we've got to get some help, getting small business, but I'm optimistic that we're going to be able to bounce back in the broker dealer. In the insurance business, we had no storms. So anytime we don't have any storms, we do fairly well in the insurance business.

And I think Jeremy pretty well reported on those lines and we'll just continue to hope that as we go through this second quarter, which is normally not our big quarter, that we will not see any significant storms that really drive the bottom line to a negative.

I think the thing that concerns us the most is the fact that our premium income continues to decline because of the competitive nature in Texas and that we've got to turn that line around and start driving it to a better return, so that we'll improve our income, but again we made $4.8 million before tax versus 1.8 last year.

So we did a lot better than last year and we'll keep our fingers crossed as we go forward here into the second and third quarters in the insurance business. So those are my reports.

We've got a couple of headwinds ahead of us and we will certainly work on those and I feel confident that broker dealer will come back, we work hard on the mortgage side and I look very optimistically towards the bank in what's going to help drive us that is credit quality and I feel very happy with that and the discipline that we have.

So that's my report..

This concludes our prepared remarks. We will now take questions..

[Operator Instructions] Our first question comes from Michael Young with SunTrust..

Wanted to start with just the municipal issuance market and maybe kind of a little bit of an outlook there.

Do you think that the pipelines just go down and it's got to rebuild or do you think this could be more of a secular shift with a lower tax environment that we're in now?.

Well, we saw - in the quarter, we was our issuance drop year-over-year significantly, even greater than National issuance. And I think that also the first quarter is kind of a weaker quarter to come out of it. I think we think that versus last year, the public finance business is not going to be as brave, it's going to be off.

But that it should build through the year. I think if you look at from past year, where we're at today, I hope that it kind of comes in as far as revenue last year of about 20% off..

Okay.

And given that, I mean, do you think some of the other businesses can pick up the slack and we can still kind of hit the full year guidance there or do you think we should kind of be carrying back our assumptions for the year at this point?.

I think for the broker dealer, we've got [indiscernible]. I mean I think that you had, in our institutional businesses and TV - in the structured finance, the public finance and capital markets get off to a weak start to the year.

And I think if you look at kind of over the year, I would probably update the view would be about, net revenue of 360 million to 375 million and looking at a pretax margin in the 10-ish range, 10 to 12-ish percent range.

For the year, and I think that kind of coming into next quarter, I hope that - and we had some things in the first quarter that were driven by some sudden rate shocks. I think that stuff will normalize and the rest will just kind of moderate a little bit higher, but I don't think will rebound kind of at the levels we were in '17 just yet..

Okay. And in the structured finance business, is that, I guess, what you saw this quarter, are you seeing more competition there or is it just purely the volume in kind of the existing areas that you've been active is just lower..

Well, first, there was the rate shock that we had decreased the profitability in that business in the first quarter to a degree and I think that that will moderate. That said, and so that's kind of speaking to the spreads, can be compressing. The volume is off as well.

I think one of that is just general, the overall mortgage market, it's going to be tied to. And also then secondarily is competition. And so, I think that we had really strong periods with that. I think that we had kind of collective net revenue on that business of like, excuse me, so of about 7 million for the quarter.

I think that that will rebound significantly next quarter, but probably not to the 20 million that it did in the fourth quarter of '17..

Okay. And just one last one kind of big picture, I heard the comments about maybe being a little more aggressive on the share buyback next quarter, but just following the River Oaks transaction announcement, have you seen any increase in conversations on the M&A side and just any outlook you could provide there..

Yeah. I think first and foremost, what we're working hard on is, we're really excited about The Bank of River Oaks transaction and what that's going to do for us as a franchise and we are working to get that executed, signed and get integrated and grow.

So that said, I think as far as, we have seen additional conversations and additional interest in talking to us. We think that it's a strong economy in Texas and there's not a lot of distressed deals there, but I do think that there are people that find our cash compelling. So that's what we've seen there.

And I don't think that the - we don't still preclude it from evaluating and pursuing M&A right now..

Our next question comes from Brady Gailey with KBW..

It's [indiscernible]. I guess just touching - coming back to the Houston outlook and your thoughts there. There does seem to be a lot of interest.

Maybe if you can provide an outlook again that, on the growth plans there and perhaps maybe, are you guys interesting in doing lender hires or team lift ups to kind of build the scale up there?.

Well, we're acquiring Bank of River Oaks, which is a real quality franchise. It's most desirable geography of Houston. So that's where we, you are going to get the boost and with that, we're partnering with some seasoned banking executives that are going to really be able to work with the existing PlainsCapital team in growing that market.

So I mean that's where we're at and I think that we'd want to continue to build on the franchise. Alan, you can speak to the lender recruiting..

The economy is picking up in Houston and the opportunities are there and I think we're going to find quite a few opportunities with this bank and with these guys because of their ability to be able to expand the relationships they have and yes, we're going to look for additional lenders. We'd like to find additional lending teams.

Obviously, everybody does that. So, we'll do all the things as we always do. I think, this can be a good opportunity for us and this is pretty well centrally located in very good part of Houston and so we hope to be able to take advantage of it and I think we'll see those advantages come in the second half of this year.

Once we get a hold of it, we ought to be able to be able to build and grow the loan side pretty fast. So I'm pretty optimistic from that standpoint..

And then maybe to loan growth, actually still maintaining that 6% to 8% guidance and I kind of do recognize that it can be lumpy, no construction loans, funds to pay off, but was the paydown activity ex-construction kind of elevated this quarter and is that something maybe?.

Yeah.

If you recall and you may not know, but in '16 we thought we're going to get a bunch of paydowns at the end the year and we ended up loan growth of 13% and then in '17, the first quarter, we just got hammered because we got all those payoffs and what happened to us this year, as we got a lot of payoffs in the first quarter and you get a $50 million or $60 million construction loan payoff or $20 million and $30 million loans, it's pretty hard to come up through.

We made $180 million worth of new loans. I mean we had $180 million worth of payoffs that hit us in the first quarter and that's gone hard to come up through right now, but we have a good pipeline. We have approved a lot of pretty good sized loans.

We just have to get them funded and I don't know today is not like when I used to do it a long time ago, you just don't resign a note and book it, it takes a while to get these signings to get on the books, it takes a while to get them closed, especially construction loans, they have to fund up.

So it's just a process, but I feel good about it and what I really feel good about is the quality. I mean, you can say whatever you want to say about our loan growth, but our loan quality has been good and if we don't have problems and we're not having a whole bunch of money into the reserve every quarter, that's pretty good.

So I'm not going to give them the pressure on to have loan growth just to have it. I want to have good loan growth and I want to be disciplined and we are and it's paying off for us. And so $3.8 million worth of charge-offs in five quarters over and $6 billion loan portfolio, I put that up against anybody..

It definitely makes sense. Credit continues to perform well. I guess one last thing kind of relates to those two topics, kind of what are you seeing in the C&I space that kind of makes you cautious and maybe you're wanting to focus more on CRE..

Well, we're not. We'd love to make C&I loans. The problem is very competitive, structuralized, people are doing things on a structure basis, we're not going to do. They're not in my opinion waste things and so we don't give them that. We'll give them rate. We don't mind that. We don't see a weakness in C&I.

We do see a competitiveness and the problem is we're not going to give them structure. We're not going to give them the terms like that. We will give them rates. We just made a $20 million loan this week that we got and we got it on our terms and we got based off our relationships. So I don't see a weakness in C&I.

I just see a weakness, I mean, a difficult time in the competitiveness and the structure of this, some of these guys willing to do and we're not..

Our next question comes from Brett Rabatin with Piper Jaffray..

Wanted just to make sure I understood the commentary around mortgage banking. Alan, if I heard you correctly, you said you think you do a little bit better in 2Q. But then I also thought I heard you say you expect continued spread pressure on gain on sales price.

Can you maybe reconcile that and then just as I guess?.

Traditionally, first quarter is not good. Second and third quarters are our stronger quarter and the fourth quarter is our soft. Well, we didn't have a good first quarter, just like we traditionally feel, maybe it was a little worse than what we thought. Volume was there, spreads were off and that's what hurt us.

I don't think that spread deals, we're going to improve much in the second quarter, but that doesn't mean we're not going to do okay. We'll make money and we'll make decent money. We're not going to make the money that we thought we did, if the volumes held up.

And then I think we get past the second quarter, we're just going to have to see where this is because the refi business has gone and it's going to move more and more towards the purchase business and as I said, the more our volume moves towards 100% is going to be a plus for us because that's going to mean those guys that are in the purchase business are going to be out of it and they're going to be gone and there's - therefore the competition gets to be less.

It may be helps us with our spreads, but there is no bad about it. It's going to be a tough year. I'm not saying it isn't, but it's yet to be seen what is going to happen as we go forward. I think second quarter is going to be slow and it's going to be tough.

I think the volumes will be all right, but I think margins will be weak and profitability won't be as great as it has been. And then we're going to have to call it from there because it is changing all the time. I gave you an example last week, the NBA purchase money loans increased 1% last week and the NBA increased 2.1%.

So you see, we're getting our share of the purchase business as long as we can keep doing that, it's going to force other people to probably have to get out of business because they're not going to be able to survive because there's nothing else there with purchase now we've got to worry about. The inventory and we've got to worry about the economy.

If the economy can grow at 3% or better and the Fed doesn't stop with interest rate increases, I think we'll be all right. If it comes like it has and the economy is going, we got to get to look at something else. We've got other problems.

And you would think, well, if your margins are down over last year, you have a lot of costs, but the problem is you can't cut costs, because our volumes are up.

And so you've got to be able to close those loans and do those things and you can say, well, okay, we don't need that volume, we're not going to do that, but if you don't allow your loan officers to make loans, and be able to get commissioned, they're going to leave and then you lose your tools that make you what you are.

So you've got to be competitive in this environment and we've been in this before. We just haven't seen it last this long and of course for the difference between what we saw before is the fact that interest rates are rising too.

So we're not only facing people trying to struggle to stay in business, we're also facing rising interest rates, which I'm not real sure at this point the total effect that has on it. And I hope I totally confused you, because..

That was great color. I appreciate it. And then you did mention cost, last year, you managed expenses pretty flat, actually little down. And I realize there's a lot of business lines that go into it.

But as you guys are thinking about this year, can you do that and maybe even cut them a little bit or what's your thoughts on the expense run rate?.

Are you talking about prime lending?.

No. Just the -.

Yes. I think as we look at cost obviously, we are working across all of the levers we have as we look at the businesses from a growth perspective and the results that they produce. We remain focused. We mentioned in the last call that 2017, we were doing a lot of planning.

This year we're doing a lot of implementing and that really drove the $2.7 million of core system cost in implementations this quarter. Those will be ongoing, but we are working diligently to streamline our middle and back office and we'll draw cost down as we move forward..

Okay.

Any idea of the magnitude, Will?.

I think as we sit here, we're going to work through the second quarter to help provide a little more clarity of that over time..

Okay. Fair enough. And then maybe just last one for me, you guys had great DDA growth core deposits.

Can you talk about maybe what's driving that and I know you're deposit focused, but what's sort of driving the core deposits?.

Yeah. I think we had a couple of number of clients just increase their balances. So we had a couple of things that went on there. One, some new client relationships. Two, some clients put some incremental dollars in it in the non-interest bearing account, but again it remains a focus. We view that as core deposits.

We view that as core client relationship deposits and as we've been kind of talking for the last 12 months, we are unequivocally focused on growing the business and growing core client relationships. So that, it's just a reflection of that over time..

Our next question comes from Michael Rose with Raymond James..

I just wanted to go back to the broker dealer. Jeremy, appreciate the guidance on the pretax margin. But what gives you confidence that you can actually be in that range, assuming we got a couple more rate hikes and muni volume industrywide continues to decline.

Is it more a function of cost or is it market share gain or do you actually think that that business can organically grow?.

You're speaking to the entire broker dealer..

Yeah. Maybe what pieces do you think you can grow? I mean is it more of cost cuts or is it - are there other areas of the business that you think can grow, just some greater color on how you get to that 10% to 12% margins? Thanks..

Yeah. Well, I mean, well, we've kind of been shooting for in the past about $100 million of net revenue a quarter. This past quarter, it was 80 million.

There is a certain amount of it that was related to interest rate shocks and impact of that on the TBA and the capital markets business and I think a little bit of it, some of it is due to the acceleration of public finance issuance in the fourth quarter.

So if you kind of look out over the next three quarters and those normalize, that's where I think that the net revenue will - won't get back to 100 million, but probably get back to about 90 million a quarter and I think that given the mix shift in the businesses, you're looking at a 10-ish percent pretax margin.

So I guess that's where my confidence is and underpinned it, we haven't talked about is, so these institutional businesses struggled which in the broker dealer business is not uncommon to have some volatility, but we've had some real solid performance from other businesses in that, into the retail segment has grown and a lot of that has been aided by a rise in short term interest rates, the stock lending business has grown and through balances, but also through higher short term interest rates in our clearing business.

And so I think those - and those are - in this environment actually more predictable as far as the revenue and the margins they deliver..

And then maybe back to loan growth, Alan, previously you guys talked about a pipeline, I think the commercial pipeline, I didn't see it this quarter, but it's been trending around 1.8 billion, any change there that would give you confidence that you could meet the loan growth target? Thanks..

It's still running about there in our construction pipeline is running about 750 and that will continue to fund up. I can see these loans in the pipeline right now and they've been approved, we've just got to get them closed. So I think we're going to have a stronger quarter.

So certainly to not getting any big paydowns, but I can see some pretty good growth this second quarter and our people think they can come back and get back up there.

This lumpiness is tough and I have to explain to you, you make a $50 million commercial real estate construction loan, it finishes, it is going to pay off and that's what's supposed to happen. I just got to get out and find a way to replace it and we're doing a pretty good job of it. I am excited.

I can see a pretty good chunk of business there that's going to fund up this quarter. I hope it gets done. It's just a little bit harder to get those things closing than it used to be, but I'm okay on the loan growth and it's not [indiscernible] credit quality and staying disciplined on our underwriting.

I just don't want to get off and wake up and have a problem or wake up and your economy went up and got a lot of problems..

Maybe just one more for me, you guys used a little bit of, I suspect, the buyback. I think it expires in January, still got about 148 million left.

Jeremy, would you expect that you head into a decent chunk of that or maybe use it all or is it just the?.

So the authorization we have for the year is 50 million, not 100 million. And we did have kind of a light share repurchase over the last two quarters and we're just doing open market repurchases.

So we have to do it when there's open markets and so that, but to get to the point is, our goal is to be active in the share repurchase, we want to buy back at least what we issue in equity awards and then some and given this environment, it's certainly something we are - we've spent a lot of time thinking about..

This concludes our question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect..

Thank you..