Good morning. My name is Candice and I will be your conference operator today up this time. I would like to welcome everyone to the Hilltop Holdings fourth quarter 2021 earnings conference call. All lines have been placed on mute to but any background noise after the speaker’s remarks. There will be question-and-answer.

If you would like to ask a question during this time, simply [operators instructions] If you would like to withdraw your question, [Operator Instructions]. Thank you. I would now like to hand the convert over to Erik Yohe (ph). Eric you may begin..

Thank you. Before we get started.

Please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our outlook, business strategy, future plans, financial condition, allowance for credit losses, the impact and potential impacts of COVID-19 or disruptions in the global or national supply chains.

Stock repurchases and dividends, and impacts of interest rate changes, as well as such other items referenced in the preface of our presentation are forward-looking statements. These --statements are based on management's current expectations concerning future events, that 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 and quarterly reports filed with the SEC.

Please note that the information presented is preliminary and based upon data available at this time. Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information.

Additionally, this presentation includes certain non-GAAP measures, including tangible common equity and tangible book value per share. A reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop-holdings.com.

With that, I will now turn the presentation over to President and CEO, Jeremy Ford..

Thank you, Eric. And good morning. For the fourth quarter, Hilltop reported net income of $62 million or $0.78 per diluted share. Return on average assets for the period was 1.4% and return on average equity was 9.9%.

This quarter then carried forward many of the same themes we discussed in prior quarters, including improved credit quality, growth in our core loan book, the beginning of a more normalized and competitive mortgage market. And with the prospect of increasing rates in the near-term, a softening in our fixed income businesses.

Through it all, we continue to generate strong earnings and returns. PlainsCapital Bank generated $68 million in pre -tax income, and a return on average assets of 1.4% in Q4 2021. Average loans held for investment at PlainsCapital Bank increased $122 million or 2% quarter-over-quarter as both core loans and retained mortgage balances grew.

Importantly, the bank generated commercial loan growth despite elevated pay downs. The net loan growth was impacted by the continued runoff in PPP loans and a seasonal decline in national warehouse lending balances. Our remaining PPP balance was $78 million as of December 31, 2021.

The average deposits increased by $460 million or 4% quarter-over-quarter, and by $1.2 billion or 10% year-over-year. As we continue to see growth in both interest bearing and non-interest bearing accounts primarily from existing customers. For the full year, the bank generated $283 million in pre -tax income and a return on average assets of 1.55%.

This was a fantastic year for PlainsCapital Bank and reflected the excellent job the bank's leadership teams have done across the state by managing credit, taking care of existing customers and refocusing on new business growth.

In spite of a tough year-over-year comparable due to record 2020 results, Q4, 2021 was another strong quarter for PrimeLending as it generated $31 million in pre -tax income.

The business originated $5 billion in volume with a gain on sale margin of loans sold to third parties, with 362 basis point Refinancing volume as a percent of total volume was stable from prior quarter at 29%, but did decline from 46% during the same period in 2020.

We remain focused on optimizing pricing and margins, while still allowing our loan officers to be as competitive as possible in this increasingly tight market.

Our purchase orientation, stable funding profile, exceptional lenders, and experienced leadership team who have managed through multiple cycles to provide institutional advantages that should enable PrimeLending to outperform the broader mortgage market during what we believe will be a challenging time in the industry due to shrinking refinance volumes, limited inventory, and heightened competition.

Overall, 2021 was another excellent year for PrimeLending, capitalizing on the housing and mortgage market circumstances driven by the COVID-19 pandemic that started in early 2020, led the company to have its second best year ever with funded volume of $23 billion in pre -tax income of $236 million.

During the quarter HilltopSecurities generated pre -tax income of $1.7 million on net revenue of $94.6 million. A decline in rent net revenues of $55.5 million or 37% compared to Q4, 2020. The revenue shortfall was primarily driven by declines in our highest margin businesses, such as fixed income and structured finance.

Specifically, mortgage revenues and structured finance fell by $34 million or 73%, and fixed income services revenues fell by $18 million or 57%. Public finance revenue also declined by 7% year-over-year on lower issuance volume, which was in line with the broader industry declines.

While wealth management revenues increased by 2% on stronger transactional and managed account fees. For the year, HilltopSecurities generated net revenues of $424 million and a pretax margin of 10.3%.

The second half of the year was particularly challenging for our fixed income and housing businesses due to a slowdown in the mortgage industry, combined with investor expectations of rising interest rates, economic uncertainty in fear of inflation.

Nevertheless, we believe that HilltopSecurities is in a position to grow once the operating environment for its businesses improves. We have added key infrastructure, producers, and leadership to broaden our capabilities and to expand our breadth of expertise in complementary businesses.

We are focusing on diversifying and growing our revenue streams and have already made the necessary investments to support that. This will take time but we're confident HilltopSecurities, leadership team and strategic direction.

Collectively, the fourth quarter was a strong finish to an excellent year for Hilltop with full-year 2021 net income of $374 million, or $4.61 per diluted share.

While 2021 was a volatile year with a tremendous amount of uncertainties, including COVID-19 variants, supply chain disruptions, and inflationary pressures, Hilltop's exceptional results reflect the strength of our diversified business model, and the dedication of our talented people who are steadfast in taking care of our customers.

Moving to page 4. Hilltop maintained strong capital levels with a common equity tier one capital ratio of 21.2% at year end. And our tangible book value per share increased by 15% from Q4, 2020 to $28.37.

During 2021, Hilltop returned $163 million to shareholders through dividends and share repurchase efforts, representing approximately 43% of earnings to shareholders.

This week, Hilltop Board of Directors declared a quarterly cash dividend of $0.15 per common share, a 25% increase from the prior quarter, and authorized a new stock repurchase program of $100 million through January 2023. With that, I will now turn the presentation over to Will to walk through the financial..

Thank you, Jerry. I'll start on page five, as Jeremy discussed for the fourth quarter of 2021, Hilltop reported consolidated income attributable to common stockholders was $62 million equating to $0.78 per diluted share.

During the fourth quarter, the provision for credit losses reflected in net recovery prior charge-offs of $400 thousand and a net reduction of reserves of $18 million. I'll cover the changes in the allowance for credit losses in more detail on page 7 of the deck. Turning to page 6.

For the full year of 2021, Hilltop reported consolidated income attributable to common stockholders of $374 million, or $4.61 per diluted share. 2021 results highlight the strength and diversity of our businesses, including the benefits of the ongoing investments we've made to support improved productivity, and scale across our franchise.

Additionally, earnings-per-share was further supported by the previously mentioned share repurchases, which drove a 4% decline in shares outstanding.

As a result of the earnings performance and capital actions taken in 2021, Hilltop year-end capital ratio strengthened versus 2020 year-end levels with Common Equity Tier 1 of 21.2%, and a stable Tier 1 leverage ratio of 12.6%. Turning to Page 7.

Hilltop allowance for credit losses declined by $18 million versus the third quarter of 2021, has improvements in the macroeconomic outlook and the decline in specific reserves resulting from a significant credit recovery during the quarter, supported a net reserve release in the period.

Further, ongoing asset quality improvement across the portfolio also contributed to the ACL reduction during the fourth quarter. Allowance for credit losses of $91 million yields in ACL to total bank loans HFI ratio of 1.16% as of year-end 2021.

Of note, we continue to believe that the allowance for credit losses could be model and the changes in the allowance we driven by net loan growth in the portfolio credit migration trends, and changes to the macroeconomic outlook over time.

Further, as the pandemic and broader economic environment continues to create uncertainty, further volatility could occur in the coming months and quarters. I'm turning to Page 8. Net interest income in the fourth quarter equated to $104 million, including $2.5 million of PPP fees in interest, and $4.7 million of purchase accounting accretion.

Versus the prior-year quarter, net interest income decreased by $3.1 million or 3% driven primarily by lower PPP fee recognition, and lower accretion income. Net interest margin declined versus the third quarter of 2021 at nine basis points, 244 basis points, driven primarily by the impact of continued growth in deposits.

This growth resulted in higher average excess cash levels, which grew by $533 million in the quarter. These items were somewhat offset by modest improvements in the yields in the investment portfolio, and the ongoing gradual declines in interest-bearing deposit costs.

Loan yields remain pressured during the fourth quarter as the excess liquidity in the market has spurred substantial competitive pressure for high-quality funded assets. During the current quarter, commercial loan originations, including credit renewals, had an average book yield of 3.78%, which continued to trend lower through the end of 2021.

Turning to Page 9. In the chart, we highlight the asset sensitivity of Hilltop assuming parallel and instantaneous rate shocks, which represent an asset-sensitive position of approximately 11% in the up 100 basis points area. As we evaluate assets sensitivity and interest rate risk, we assess a number of potential scenarios.

Of note, if we shift the analysis from an instantaneous parallel shift to a gradual increase over the course of the next 12 months. The up 100-basis point asset-sensitivity falls to approximately 5%. Further, in this scenario, each 25 basis points increase, positively impacts net interest income by approximately $5 million.

Lastly, for 2022, we expected the impact of PPP related fees and interest, which were approximately $22 million in 2021 and purchase loan accretion could decline by $25 to $30 million versus the 2021 levels. Moving to Page 10.

Total non-interest income for the fourth quarter of 2021 equated to $285 million or quarter mortgage-related income and fees decreased by a $106 million versus the fourth quarter of 2020, driven by the evolving environment in mortgage banking, which remained strong but reflected a more traditional cyclical pattern when we saw during the prior-year period versus the prior-year quarter purchase mortgage volumes decreased by a $124 million or 3%, and refinance volumes declined much more substantially, decreasing by $1.7 billion or 54%.

During the fourth quarter of 2021, gain on sale margins were stable with third quarter levels increasing by 1 basis point on a reported basis, and 3 basis points on loans sold to third parties.

We expect full-year average margins to be under pressure during 2022 as mortgage borrowing volumes normalize from the historically high levels seen over the last two years, and the competition for that lower volume drives tighter margins.

Currently, we expect the full-year average gain on sale margins for loans sold to third parties will average between 300 and 325 basis points, contingent on market conditions.

Other income decreased by $55 million driven primarily by declines in structured finance locked volumes, which declined by units $72 million or 37%, and a challenging trading environment in fixed income services, or by revenues declined by $18 million versus the prior-year period.

It is important to recognize that both fixed income services and structured finance can be [Indiscernible] from period to period, as they are impacted by interest rates, overall market liquidity, volatility, and production trends. Turning to page 11.

Non-interest expenses decreased for the same period in the prior year by $80 million to $322 million Decline in expenses versus the prior year was driven by decreases in variable compensation of approximately $68 million in HilltopSecurities and PrimeLending, which was linked to lower fee revenue generation in the quarter compared to the prior-year period.

Additionally, non-compensation variable expenses, particularly mortgage production-related expenses declined as volumes decline versus the prior year.

Professional services and consultancy related expenses is a place where we focused on reducing expense over the last few years, and the year-over-year benefit to these efforts as noted as expenses dropped $12 million from the prior year.

Looking forward for '22, we expect that inflation will impact compensation, occupancy, and software expenses resulting in elevated fixed costs within the business.

To help mitigate some of these headwinds, we will remain focused on continuous improvement, leveraging the investments we've made over the last few years to aggressively manage increased productivity, across our [Indiscernible] middle and back offices.

While these inflationary pressures do exist, we are continuing to further streamline our businesses and accelerate the adoption of our digital capabilities to support client acquisition and overall business productivity. Turning to page 12.

Fourth-quarter average HFI loans equated to $7.7 billion in 2021, stable with the prior year fourth-quarter levels.

On a period, end basis, HFI loans grew versus the third quarter of 2021 by $300 million driven by improving commercial loan growth, particularly in commercial real estate lending and the retention of one to four family mortgages originated by PrimeLending.

In the second half of 2021, we experienced improved customer activity in the commercial space and our pipelines continued to grow through the fourth quarter. However, with the emergence of the latest COVID variant, we do expect a slowing of activity in the short-term, with a return to growth during the second and third quarters of 2022.

During the fourth quarter of 2021, PrimeLending locked approximately $191 million of loans to be delivered to PlainsCapital over the coming months. These loans had an average yield of 307 basis points, and average FICO and LTVs of 775 and 61% respectively.

Lastly, given our current liquidity position and the lower level of commercial loan growth we expect to continue to retain one to four family mortgages originated PrimeLending, at a pace of between $30 and $75 million per month, through at least the first half of 2022. I'm moving to Page 13.

During the fourth quarter, Hilltop recorded a net recovery of previous charge-offs of $400,000. This recovery kept 2021, whereby the full year HGH reported a net recovery of prior charge-offs of $500,000, far exceeding our expectations for credit performance from earlier in the year.

Further in the graph in the upper right, we show the substantial progress made reducing NPAs as PrimeLending executed a target loan sale, and our special assets team exited all but approximately $3 million of all year assets during the quarter.

As it's shown on the graph at the bottom of the right of the page, the allowance for credit loss coverage at the bank ended 2021 at 1.28%, including both mortgage warehouse lending, as well as PPP loans.

We continue to believe that both mortgage warehouse lending, as well as PPP loans, will maintain lower loss content over time, excluding mortgage warehouse and PPP loans, the bank's ACL, the total bank loans to HFI ratio equates to 1.37%. Turning to page 14.

Fourth quarter average total deposits are approximately $12.4 billion, and have increased by $1.2 billion or 11% versus the fourth quarter of 2020. Throughout the pandemic, we continue to experience abnormally strong deposit flows from our customers, and this continued throughout the fourth quarter.

In addition to solid growth in deposits, both year-over-year and on a sequential quarter basis, interest-bearing deposit yields have continued to drift lower with a fourth-quarter average costs of 22 basis points.

While we've seen solid improvement in deposit costs over the last few years, we do expect to see deposit costs begin to rise later in 2022 if the Federal Reserve adjusts the Fed Funds rate higher by 75 to 100 basis points during the year.

While deposit levels remain elevated, it should be noted that we remain focused on growing our client base and deepening wallet share through our treasury's products and services. These efforts were successful in 2021, and we expect that they will continue to accelerate into 2022. Moving to Page 15.

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 attempting to keep our teams and clients as safe as possible from the ongoing pandemic.

In 2022, we remain focused on staying nimble as the pandemic evolves to ensure the safety of our teammates and our clients.

Further, our financial priorities for 2022 remain focused on delivering great customer service to our clients, attracting new customers to our franchise, supporting the communities where we serve, maintaining a moderate risk profile, and delivering long-term shareholder value.

As it's noted in the table, our current outlook for 2022 reflects two rate increases by the Federal Reserve during the year. A normalizing but constructive purchase mortgage market.

A more productive balance sheet as excess cash levels moderate and loans grow at a measured pace as well as the normalization of provision for credit losses, given both growth and credit migration expectations. Operator, that concludes our prepared comments and we'll turn the call back to you for Q&A section of the call..

At this time, I would like to remind everyone in order to ask a question, press star, then press one on your telephone keypad. We will pause just here for a moment to comply with the question-and-answer roaster. Our first question comes from Michael Young from Truist. Michael, your line is now open. Please go ahead..

Hey. Good morning, everyone..

Good morning..

Morning..

I wanted to ask a quick housekeeping one, Will. Just on the earnings this quarter. Were there many fair value impacts in -- sometimes like the TBA business is kind of unhedged. And anything on the MSR side that we should be kind of normalizing as we move throughout 2022..

Nothing substantial in the year-end period. So we had some things throughout the year, but nothing in the fourth quarter of significant consequence..

Okay. And maybe within the capital markets business and TBA business, I, obviously you can't control the macro and what's going on with interest rates etc. But can you just talk about sort of the initiatives or efforts underway yeah within what you can control to grow that business against more difficult macro-environment..

This is Jeremy. Sure, I'll take that. On the fixed income side, obviously, you've seen this with other competitors having a challenging quarter and challenging second half of the year given its market. The rate and the customer’s appetite.

I do think if you see, we have recruited a lot of talented people to fixed income and we continue to try to build up that capital markets business. In particular, we have a real focus on building our middle market sales effort, because what has come to light really this year given this environment is our reliance on trading revenue versus sales.

That's the biggest push that we have there to diversify that on that side..

Okay, great and just maybe moving over to mortgage, obviously, refinance volume is really expected to fall off in 2022 is rates fall. And we are as rates rise and we've seen that already somewhat but guys have historically been pretty strong in the purchase market, and that actually looks pretty decent.

So could you maybe just talk about your outlook for that business for 2022? in that context and are you guys still hiring and trying to grow volume in that business or are you going to take efforts to maybe control costs a little bit more in 2022?.

I'll just talk about the recruiting first, and Will can chime in. But we are and always have been a purchase focus originator, and the expectation is for purchase mortgage volumes to increase really over the next three years, albeit refinancing volumes obviously expected to be cut by about 70%.

So we do think that's going to affect the competitive landscape, and we do think that -- and we've already seen that have an impact on our margins. We are actively recruiting and it's very competitive as well in doing that, but we are -- we have been successful at recruiting.

And then we're looking for experienced loan originators that have a purchase focus. And I can say through 2021, we had a net gain of 34 producers for about $500 million of incremental volume..

[Indiscernible], Michael.

In terms of managing the overall profitability of the business, obviously, we're moving quickly and have moved quickly into the cycle where overcapacity in the market takes hold and the competitive set, generally to lower price, to keep the machine if you will, kind of fulsome while they worked to rationalize the size of their operations.

So we're expecting as we guided here, gain on sale margins to decline into that 300, 325 basis points range. As we noted on the call, they were 347 on a reported basis and 362 on loans, a third-party basis in the quarter.

As the pretty material decline as we worked over the last three or four years with our new loan origination platform, as well as our digital efforts in the mortgage space. It's a focus of ours to improve the overall productivity of our business through and through.

We're going to be working to do -- to pull the leverage, Jeremy mentioned which is grow our originator base, but we're also going to be looking to drive overall productivity.

It will be -- we're going to be pulling both levers in 2022 to try to drive as much profitability as possible, understanding it is going to be more of a challenging year than it has been in the last couple of years, just given the mortgage backdrop.

But we do feel constructive and remain constructive on the purchase side of the business, we do expect that to grow. The market expects that to grow, and we expect to get our fair share of that business..

Thanks. I'll step back..

Our next question comes from Matt Olney from Stephens. Matt, please go ahead..

Hey, thanks. Good morning, guys..

Hey, Matt..

Good morning..

I want to go back to the discussion around HilltopSecurities. And I think you said the revenue for the full year was around $424 million. And obviously some of those industry headwinds came on kind of throughout the year. As you see it today, do you think you can achieve that $424 million in 2022..

We're not going to give exact guidance on that. I would say if you look back at the year as we've described, there's really the last six months of '21 where we saw the impact to the -- those two businesses. And I would expect, we're going to go into this year with contain -- pressure on them.

Then eventually and as we see things kind of evolve and those businesses markets improve, our revenue should improve, and our margin should improve. I mean, we're committed to these businesses. We got great people that run it and know what they're doing, and I think that they'll be an upside of that..

Okay. Thanks for that. And then I guess switching over to the bank -- the loan growth in the fourth quarter. Any more color on the drivers of that loan growth. And then I guess looking at the guidance on loan growth, it doesn't sound like you think the fourth quarter was any kind of inflection. Just any more color around the guidance there..

Yeah. So fourth quarter, if your kind of just go on a late quarter basis, I tried to highlight in the comments, we saw kind of better activity in our -- in our CRE lending space in any unique balance that was up just over a $120 million.

The PrimeLending retention for the period was about a $190 million, so that gives you a sense of kind of where the growth was.

The things that -- the things that declined in the period, obviously PPP loans declined just over $55 million and national warehouse lending declined about $94 million, which is seasonal for that business and again, we saw a more seasonal mortgage space and national warehouse lending followed that. All that path.

As we look out, from a commercial loan growth perspective, again, we're trying to negotiate what is a challenging environment with COVID to protect the safety and -- of our clients and our associates.

We pulled back in the late parts of the fourth quarter as the -- this strand of the pandemic kind of continued to rage forward, we pulled back again the in-person calling and a lot of the calling activities that you would normally be expected and that we've restarted in approximately middle of the year last year.

So what we're expecting is if you pull back the calling efforts and your sales efforts for a short period of time, and again, we still get people on the phone and retail clients, but the in-person efforts, which is generally a more fruitful endeavor.

We expect to see a little bit of a low in the first quarter, and then that growth to start as this strand looks to be abating our expectation as growth starts to resume in the second and third quarters of this year. Again, the focus there will be trying to grow that commercial business in that 2% to 5% range on a full year average basis.

But what we're seeing a lot of you certainly send a text across our footprint is stronger activity in CRE. And I'd say solid activity in C&I but most of the activity from a CRE perspective..

And the only other thing I would just mention is on the growth in the fourth quarter, it was a lot of our existing customers. So that was the commonality..

That's helpful and then I guess on the expense side, looking at that guidance on Slide 15, I appreciate the way you guys broken out between variable expenses and non-variable expenses, that’s helpful on the non-variable side, it looks like you expect that to increase between 3% and 6%.

Any more commentary you can provide on that, I guess -- I thought -- I was hoping there could be more opportunity to cut some cost even on the fixed side, but obviously there's some wage pressures going on in the industry.

Just any other commentary you can give us on that?.

I think you hit on it. I think wage pressure's real. We're acknowledging it here. We'll expect to see merit or living adjustments be higher than they would have historically been. A couple of percentage points that's reflected here.

We've also got in our software agreements and occupancy agreements and some of the other agreements, just inflationary escalators that are embedded there, so that's, real costs.

Again, I think what we're focused on doing and the lower end of the range here reflects what I would say an offsetting impact of the work we're doing from a productivity perspective. So I want you to take away that we're not focused, laser-focused on driving productivity across all of our operations, which we absolutely are.

But in the short run, which we view kind of a one-year period almost to be the short run, those inflationary pressures have persisted, certainly in the fourth quarter, we're seeing them continue into the first quarter, so we expect they will be there for a period.

And we're not again, as it's been our practice, we're not going to overreact here to a short-term phenomenon, and we're going to do the things that we think they're going to help position our business to be most successful over the long term, both from a -- an investment perspective, but also from an expense reduction perspective..

Okay. Thank you, guys..

Thank you..

Thank you..

Our next question is from Brad Milsaps from Piper Sandler. Please go ahead..

Hey, good morning..

Morning..

Hey, will just wanted to follow-up on Matt's question around expenses. If I take the midpoint of the range and I think you had about $850 million of Non-variable expenses in '21. I would imply like $40 million of additional expense in 2022, which Just seems like a big number, just kind of curious.

I mean, is most all of that going to show up? Just in the personnel category? It just seems like a big leap based on kind of where you are now..

I think there's a few things few things in there. It's not all going to show up at personnel, but you'll see the personnel portion at that percentage level. You will see the rest of balance in software expenses and a balance in occupancy expenses.

They'll -- all of those are going to, we think, move in that range just based on contracts and then the expectation across living adjustments from a personnel perspective. And as well as healthcare-related costs which were up sustainably year-over-year as we're going into the year here. That's where you're going to see it.

And again, we are working diligently to affect productivity improvements across the businesses, and that generally relates to headcount and the efforts as we automate and digitize a series of our core processes, we continue to make progress there.

But again, in the short run, the market is moving and has moved pretty quickly in terms of compensation, adjustments and other costs as inflation has moved higher. So we're subject to deal with that..

Okay. Thank you. And then just on the balance sheet, I wanted to ask about -- looks like the average taxable bond yield was up to over 2.8%, up about 17 basis points linked quarter.

Just curious if there's anything in there that would be one-time driving that higher or is that kind of a new sustainable level where you are adding bonds to portfolio and would you anticipate continuing to grow the bond portfolio in 2022?.

We will -- we do expect just given where liquidity levels are, overall cash levels are, that we'll see the bond portfolio starting with the bank to continue to grow. So we've got the trading portfolio, HilltopSecurities, which has moved between $600 and $700 million dollars last couple of quarters on an ending -- on a reported basis.

We expect that the bond portfolio, the bank on the other hand, will likely move higher as it has I'd say drift higher. [Indiscernible] a $100 to $200 million higher per quarter.

Again, we're focused on not taking too much period vintage risk as the market rolls over to what appears to be a fit moving, rates higher, we are focused on purchasing securities that allow us to maintain a reasonably high level of asset sensitivity.

So that would be some more floating rate securities than we've maybe historically bought and are going on -- are going on at the money fixed rate -- fixed rate security purchase right now is about 175 basis points. So again, we expect the securities portfolio at the bank will move higher. Rates have obviously moved up.

And again, we're going to do what we can to manage our asset-sensitivity level. So we can take advantage of what we believe to be a longer cycle of rates moving higher over the next quarters and maybe years..

Okay, great. But nothing specific in the yield this quarter. That's a pretty good number going forward..

Nothing. I wouldn't say anything significant that moved it..

Okay. And then just final question for me. Just around your asset sensitivity, I appreciate all the disclosure. Can you remind me how the impact of the suite product that you have, I think at the broker dealer? How much does that impact that -- the interest rate sensitivity table that you disclosed in the deck, if at all.

I just wanted to have a kind of a refresher reminder, kind of what the opportunity is there. I know Jeremy, you mentioned that in the past..

Thanks. From an asset sensitivity perspective, it doesn't impact it. We -- it's not a net interest income line item as it comes through the consolidated P&L. It's more of a fee item at the broker dealer from a P&L perspective so it doesn't impact the asset sensitivity in that evaluation from a net interest income perspective.

What it does do is it rates move higher. The value of those fee deposits obviously will move higher and the value of the fees generated obviously will grow. But as far as asset sensitivity from a net interest income perspective it's not impacted..

Okay. Great. I appreciate the clarity there. Thanks for that. Thanks for taking my questions..

Next question is from John Yan Tunis, from Raymond James. Your line is now open. Please go ahead..

Good morning..

Morning..

Good morning..

I was hoping you could unpack your deposit guidance and why you're anticipating such a relatively big drop in 2022..

And well, I think our view is as the Fed starts to move its balance sheet, pull liquidity out the marketplace as well as what we expect to be kind of the last innings of the stimulus notwithstanding, as we note here, additional stimulus efforts, we expect to see kind of an additional usage of these deposits by customers over time.

We also expect as there -- as the economic environment starts to clear and we get a little more clarity around both the rate environment, inflation, and however temporary or otherwise this inflation is, that our customers are going to start to put money to work with additional investments, whether that be an inventory from a C&I perspective, or additional projects and programs from a real estate perspective.

Again, we are a commercially oriented community bank, and as a result, we've seen a large inflow of deposits from those customers that have been profitable over the last couple of years, as well as the benefits of the stimulus as both of -- again that stimulus we believe is in the last innings and so we do believe that the consumer portion of our portfolio will start to see net draws in deposits we also expect that our commercial customers will start to put more dollars to work as they get more clarity.

If the pandemic starts to improve and as we get clarity on the economic outlook for the next couple of quarters, we expect see those customers put deposits to work..

I appreciate it and then in your prepared remarks, I believe you said that you expect deposits cost to increase in 2020, and I guess I was wondering, how quick after the first rate hike do you plan to raise deposit costs and then do you have any sense on where the NIM will shake out in the near-term?.

As it from a model concert cycle data. Through the cycle which would be through, the entire rate cycle, we model about 50% pull-through on from a deposit cost perspective.

As we think about the first couple of movements, we would expect in 2022 gift the Fed were to move rates a 100 basis points, for example, that our the Meda into the period of 2022 is likely 20% to 30% as we'll take some time after the first and likely the second increases to evaluate the market and valuate our liquidity position.

But we do expect it the Fed, as I mentioned in my comments, move 75 to a 100 basis points, we'll have to start to pass through a portion of that to customers. From an.

Understood. I --.

[Indiscernible] second question. From a NIM perspective, we're expecting NIM to likely drift -- total [Indiscernible] NIM to likely drift a little lower here in the early part of the year. And then as those rate increases occur, if they occur, we'll see NIM start to expand. But there will be really two things.

There will be expansion really on the liability side, as I just noted. On the asset side, we expect kind of rigorous competition to persist as well as we've got to work our way through our overall loan floors to see the expansion on the asset side..

Perfect guy Appreciate it. And [Indiscernible] was speaking one last question.

I guess with mortgage volumes expected to shrink in 2022, has the pool of, I guess total originators shrunk across the market, and ask me that was the backdrop of you guys continuing to hire or increase your number of loan originators, just wondering if that's playing out at all..

Not so much -- Not so far..

[Indiscernible] going to take -- That's going to take 12 to 18 months as prices reset, volumes reset, people's earnings expectations reset, of what they can make in this particular business.

That has distortly taken I'd say a series of quarters or a year or so or just start to pare it out and those who have the will and capability to perform in the market long term, kind of shake out..

Understood. Thank you for taking my questions..

Thanks..

We have a follow-up question from Michael Young from Truist. Michael, your line is now open. Please go ahead..

Thanks for the follow-up. Just wanted to ask on capital allocation and returns. You guys in the past is kind of try to maintain above for maybe $500 million or so of excess capital, but the capital levels are obviously quite high. Even more so than that today. Maybe Will, if you could give an update on what you view as excess capital at this point.

And I know you guys approved a $100 million share repurchase, which is more than maybe the standard 50, but just any other thoughts about share buyback versus are you seeing M&A in the pipeline that would cause you to kind of hold onto this more capital here or anything like that would be helpful..

Sure. This is Jeremy. I'll take that and Will fill in. But right now, we're sitting on excess purgatory capital of about $1 billion, that is higher than the $500 million that we had pre -pandemic. And we got there is, I think due to I believe more outsized earnings and some other corporate actions.

I would say that we're excited about announcing this dividend increase. It's 25% up. It's -- that's on the prior year, 33% up. I would caution that we don't expect for dividends to increase at this rate in the future, but I think it's a real affirmation of what we've been able to do, and strength in the future and shareholder return.

And for that matter, as I mentioned, we did return about 43% of earnings last year to shareholders through share repurchases and dividends. And so similarly, we announced increase in our share authorization or repurchase of a $100 million. And so we'll be evaluating that to do those repurchases in the open markets.

Excuse me, open window periods that's all to say. I think that even still, we're going to probably hover around that billion dollars of excess capital until we have an event like an M&A deal of some type..

Okay. And could you give us an update, just on M&A thoughts generally? I know you guys typically are more active when there's more distress in the market, but it seems like within the bank space that's maybe not going to be the case for some period of time, just given the amount of stimulus running through the economy and higher rates coming.

A lot of banks are going to be in pretty strong position. The reevaluate or looking at capital base any different in light of that generally, but also just general M&A thoughts..

Sure. Our desire is to do bank M&A to bolster the balance sheet of the bank and the earnings profile of Hilltop collectively. And where we've got kind of dialed in looking at a set of banks in Texas that we think are our franchise enhancing and that would be good partners where we -- our preference would do more cash and a transaction.

And that's not been a strategic advantage in this environment, given the tax implications of it. We are challenged based on our currency. We're mindful of that. But hopefully we can find the right partner and with enough cash and the deal would be worthwhile for us..

Okay. Thanks..

Thank you..

There are no further questions at this time. I would like to turn the call back over to presenters..

Operator that concludes our call. Thank you..

This concludes today's conference call. You may now disconnect your lines..