Hilltop Holdings Inc (HTH) 2014 Q4 法說會逐字稿

Good morning, and welcome to the Hilltop Holdings fourth-quarter 2014 earnings conference call.

(Operator Instructions)

Please note that this event is being recorded.

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

Good morning.

Joining me on the call this morning are Jeremy Ford, President and CEO of Hilltop Holdings, Alan White, CEO PlainsCapital Corporation, Darren Parmenter, Principle Financial Officer of Hilltop Holdings, and John Martin, CFO, PlainsCapital Corporation.

Before we get started, please note that this presentation and statements made by representatives of Hilltop Holdings Inc. during the course of this presentation include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results performance or achievements anticipated in such statements.

Forward-looking statements speak only as of the date they are made, and except as required by law the Company does not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning acquisitions, including our recent acquisition of SWS Group Inc. and integration thereof, mortgage loan origination volume, market trends, organic growth, commitment utilization, exposure management in our insurance operation, loan performance, the Company's other plans, objectives strategies, expectations, and intentions and other statements that are not statements of historical fact, and maybe identified by words such as anticipate, believe, could, estimate, expect, forecast, goal, intend, may, might, probable, project, seek, should, view or would, or the negative of these words and phrases or similar words and phrases.

For further discussion of such factors, see the risk factors described in Hilltop's annual report on Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.

And now, I would like to hand the presentation over to Jeremy Ford.

Thank you, Isabel, and good morning. One note, our results for the quarter do not include SWS, as the acquisition closed on January 1.

For the fourth quarter net income was $31.7 million or $0.35 per share. For the fourth quarter of 2013, net income was $29.5 million or $0.34 per share. The full-year 2014 net income was $105.9 million or $1.17 per share.

Our ROA was 1.42% in the quarter, relative to 1.31% in the prior year, and 1.26% for the year. Our ROE was 8.55% in the quarter, relative to 9.31% in the prior year, and 8% for the year. Hilltops four operating segments reported $52.9 million in pretax income during the quarter. PlainsCapital Bank contributed $41 million, PrimeLending had a pretax loss of $4.9 million. First Southwest contributed $5 million, and National Lloyds Corporation contributed $11.6 million.

Our total stockholders equity increased to $1.46 billion at Q4 2014, up $37.5 million from the prior quarter, and $150 million from 2013. Hilltop had $146 million of freely usable cash at year-end, though approximately $78 million was used for the SWS Transaction. We continue to have excess capital following the SWS Transaction.

Hilltop and PlainsCapital were recently issued a BBB rating by Fitch. On January 1, 2015, we closed our acquisition of SWS Group, and our focus during 2015 will be the integration of SWS, and evaluating bank M&A opportunities.

Moving forward, set forth on this page is the 2014 full-year and by quarter selected items, and I will speak to the items that we haven't already spoken about. Our book value per share has increased by $0.42 in the quarter to $14.93. Our net interest margin expanded in the quarter to 4.72%, and was 4.74% for the year.

Our assets remained relatively flat from the prior quarter at $9.2 billion. Our loans grew by $43 million, and our deposits grew by $133 million in the quarter. Our NPAs to total assets were good at 25 basis points at quarter end.

I'll now turn the presentation over to Darren Parmenter, who will discuss the consolidated financial results.

Thank you, Jeremy.

With that, turn to page 5: Hilltop Holdings net interest margin increased by 34 basis points in the quarter to 4.72%, compared to 4.38% in the third quarter due to higher yields on gross loans, partially offset by higher cost of interest-bearing deposits. Yield on earning assets of 5.1% was driven by an increase in gross loan balance, increase of costs of interest-bearing deposits due to run-off on time deposit premiums.

For the quarter, the tax equivalent NIM for Hilltop Holdings was 119 basis points greater due to purchase accounting. The accretion on discounted loans was $21.6 million. Amortization of premium on acquired securities of $1.2 million, and amortization of the premium on acquired time deposits of $100,000.

Moving to noninterest income, our noninterest income was $213.8 million in the quarter, up 17.2% from prior year. Net gains from the sales of loans, other mortgage production income, and mortgage loan origination fees increased $14.5 million or 14.8% from the fourth quarter of 2013 to $112.7 million in the quarter, representing 53% of the noninterest income. Net insurance premiums earned was $41.6 million in the quarter, representing 19% of noninterest income.

The financial advisory fees, commissions increased $11.4 million, or 50%, from the fourth quarter of 2013 to $34.2 million in the quarter, representing 16% of the noninterest income. The fair value changes in the SWS investment during the quarter resulted in a $6 million gain.

Moving forward to noninterest expense, our noninterest expense was $246.8 million in the quarter, up 12.3% from prior year. Compensation increased $21 million, or 18.7%, from the fourth quarter 2013 to $133.4 million, representing 54% of the noninterest expense.

Occupancy and equipment expense decreased $1.5 million, or 5.7%, from the fourth quarter 2013 to $24.3 million, representing 10% of our noninterest expense for the quarter. Loss in LAE and policy acquisition and other underwriting items expenses was $30.2 million in the quarter, representing 12% of our noninterest expense.

Other expenses increased $6.2 million or 11.7% from the fourth quarter 2013 to $58.9 million. Amortization of identifiable intangibles from purchase accounting was $2.5 million, and transaction expenses related to Southwest Securities was $1.4 million.

Moving forward to our balance sheet highlights, our balance sheet grew in the fourth quarter, as the decline in borrowings were more than offset by a growth in deposits, and growth in noncovered loans outpaced our work-out of covered loss. Gross noncovered loans held for investment increased $151.6 million, or 4%, from Q3 to $3.9 billion. Noncovered loans held for investment has increased $405.8 million, or 11.5% since the fourth quarter 2013.

Gross covered loans decreased $108.6 million, or 14.5%, since the third quarter to $642.6 million, due to successful ongoing efforts to resolve troubled loans acquired within the FNB Transaction. Covered loans has decreased $363.7 million, or 36.1% since the fourth quarter of 2013. Our covered OREO increased by $10.1 million versus the third quarter, as we had covered loans default and transfer into OREO. Covered OREO has decreased $5.9 million, or 4.1%, since the fourth quarter of 2013.

Gross loans held for investment covered and noncovered to deposit ratio declined to 71.6% in the quarter, down from 72.5% in the third quarter. Total deposits increased to $133.6 million or 2.1% from the third quarter to the fourth quarter. Noninterest-bearing deposits made up 66% of the growth from the third to fourth quarter. Common equity increased $37.5 million, or 2.9%, from the third quarter to the fourth quarter to $1.35 billion due to earnings and AOCI.

That concludes my report, and I would like to turn it over to Alan for a company operation update.

At PlainsCapital Bank, we continue to try to grow our legacy platform, while manage our expenses at our FNB acquisition. We hope that our gains from working out our covered assets will certainly come into play there. We have a robust pipeline, with about $1.4 billion in unfunded commitments, about $550 million of added real estate loans that we anticipate to be funded.

We continue to add branches in locations that we think that are desirable and fit into our franchise, Aledo, Victoria, Alice, Corpus and Houston. Currently we have 78 branches as of 12/31. We continue to divest ourselves of unprofitable branches that we acquired in the FNB Transaction to date. Since the acquisition of FNB, we have divested ourselves of several -- closed 17 branches. Our core deposit base remains strong. Our cost of funds is 25 basis points for 2014.

Legacy PCB credit remains strong. Our noncovered NPA total consolidated assets decreased 25 basis points, and we have very -- relatively little exposure in the energy business, representing about 6.5% of our portfolio. At PrimeLending, the fourth quarter we had an unprofitable quarter, driven by a seasonally lower volume and losses relating to our MSR fair value, and partially offset by our improved servicing income. Our gain on sale margins for the last two quarters of the year remained flat. Ongoing efforts are to improve our platform efficiency, as volume increased 16% over same time last year, and our headcount in our loan officers was down somewhat in 2013.

PrimeLending experienced market share gains in 2014, going from 0.68% to 0.96%, where we're very pleased with, and they continue to focus on purchase volume going from or 80% -- 69% in 2013 to 80% in 2014. Opportunistically, we continue to add MSR, and that continues to burst -- I mean, boost our service income.

First Southwest had a favorable quarter due to improvement in the business lines, but primarily the TBA housing business and our public finance business that benefited from clients capitalizing on low interest rates environment.

On 1/15, First Southwest has now been moved to the holding company of Hilltop Securities Holdings, and no ARM comes under the Plains banner. National Lloyds had a strong quarter with a 77% combined ratio, as a result of good loss experience and seasonally favorable weather. For National Lloyds, this was the best results they've had since the company was founded.

With that, I'll turn over to John Martin for the financials.

Thank you, Alan. Good morning.

Pretax income at the banking segment was $41.1 million for the fourth quarter, versus $24.6 million in the third quarter of 2014. This was largely due to ORE write-downs that we incurred during the third quarter of 2014, and an increase in loan interest income related to accretion and higher yields in the loan portfolio in the fourth quarter.

The provision for loan losses was $4.1 million. That was largely related to PCI loans, and was $1.9 million greater than the fourth quarter of 2013 provision of $2.2 million. PrimeLending funds originations through a $1.5 billion warehouse line from the bank: $1.2 billion was drawn at December 31, 2014. The Tier 1 leverage ratio increased to 10.31%, up from 9.95% in the third quarter of 2014.

Slide 11 presents the composition of our loan portfolio, which we break down between covered and noncovered loans, and then further breakdown between covered -- between PCI or purchase credit impaired, and non-purchase credit impaired loans. On our covered portfolio, we had about $642 million: $435 million was covered under the loss share agreement that we have the FDIC, and $207 million was noncovered on our -- excuse me -- was non-PCI loans. Our noncovered PCI loans were $48.9 million, and our noncovered non-PCI loans were $3.871 billion.

Purchase credit impaired loans are loans that had evidence of a credit quality deterioration, for which it was probable that not all the contractually required payments will be collected. PCI loans again include covered and noncovered loans. We had a total discount on our PCI loans at December 31 of $269 million, $250 million of the discount was related to covered loans.

Increase in accretable yield due to the increase expected cash flows in the fourth quarter of 2014 was $22.9 million for the covered PCI loans, and $1.3 million for the noncovered. The weighted average expected loss on PCI loans associated with each of the PlainsCapital merger and the FNB Transaction was 24%.

Non-PCI loans include newly originated loans, loans acquired without credit impairment at acquisition, and acquired loans that have renewed. Non-PCI loans include covered loans and noncovered loans. The portfolio balance at December 31 was 98.3% of the unpaid principal balance, with a discount of $40.1 million. $25.2 million of the discount related to noncovered loans, while the covered loans had a $14.9 million discount.

Moving to PrimeLending, PrimeLending as we said before, had a pretax loss in the fourth quarter, and it narrowed to $4.9 million versus $7.6 million in the fourth quarter of 2013. This was due largely to lower interest expense and higher origination volumes, origination volumes of $2.7 million in the fourth quarter of 2014. The purchase volume decreased to 74.5% in the fourth quarter of 2014, from 78.8% in the fourth quarter of 2013.

Refinance volume increased $193 million, or 39%, from the fourth quarter of 2013, to $690 million in the fourth quarter of 2014, largely due to a drop in interest rates. Non-interest income increased $15 million, or 15.2%, from the fourth quarter of 2013 to $113.2 million in 2014, due to higher origination volumes and servicing income.

Noninterest expense increased $14.6 million, or 14.5%, from the fourth quarter of 2013 to $115.3 million in the fourth quarter, due to higher variable compensation associated with higher origination volume. MSR had a fair value of $36.2 million in the fourth quarter of 2014. During the quarter, the fair value of the MSR declined by $5 million.

Pretax income at First Southwest grew to $5.1 million in the fourth quarter of 2014 versus $1.2 million in the third quarter, primarily due to increased fees resulting from advising public finance clients on debt offerings. The agent to be announced our business provide -- which provides interest rate protection for housing authorities had a fair value change on derivatives that provided a net gain of $4.8 million in the fourth quarter 2014. Noninterest expense increased $5.4 million, or 17.1%, from the third quarter to $37.2 million, primarily due to increases in compensation that vary with revenue.

We did establish a $1.9 million deferred tax asset valuation allowance during the fourth quarter related to capital losses on certain investments. Customer correspondent margin loan balances increased to $378 million in the fourth quarter of 2014, from $281 million in the fourth quarter 2013.

With that, I'll turn back to Darren for National Lloyds.

Thank you, John.

National Lloyds has strong pretax income of $11.6 million in the quarter, primarily driven by seasonally lower losses, but it was a decline from the $17.5 million in the fourth quarter of 2013, as prior year included a gain resulted from the redemption of Hilltop senior exchangeable notes. As a result of our exposure management initiatives, policies in force decreased by 5% in 2014. However, higher rates more than offset the decline, as noninterest income grew 4.5% from $166.2 million in 2013 to $173.6 million in 2014.

With that, I'll the call back over to Jeremy Ford.

Thank you, Darren.

So moving forward, to give you an update on the SWS Transaction. We are pleased to report that we did close the transaction on January 1, and we formed Hilltop Securities Holdings, which is a new holding company where we are housing First Southwest and Southwest Securities that will run as parallel entities until we get final conversion and regulatory approval.

We have -- for the combined broker-dealer we have a strong management team led by Hill Feinberg, Jim Ross, Bob Peterson and John Muschalek, Mike Edge and Alan Tubb, and we have various committees established, and their integration efforts regarding real estate, regulatory, IT, employee and finance. We expect a full broker-dealer integration to be realized in 18 to 24 months -- would because of the systems integration and regulatory approval. But we will move quickly on a lot of other aspects of that, well in advance of that.

And for the bank, immediately following the SWS transaction, SWS Group's bank merged with PlainsCapital Bank, and brought four new branches, strong core funding and key personnel. PlainsCapital Bank is going to close seven of the SWS branches, and those locations will include Albuquerque, Ruidoso, Fort Worth, and El Paso. And we have already reduced SWS bank's balance sheet significantly through security sales, and the bank conversion expected to be completed in the second quarter of 2015. So that's going very well.

On the next page, shows our organizational chart. On the top is before the SWS transaction, where we had a 21% ownership interest in them. And the bottom is the current one, where we have Hilltop Securities as a holding company, for the broker-dealers First Southwest and Southwest Securities.

The next page, we also issued, along with our 10-K and 8-K, to show the actual pro forma results of the SWS acquisition. This pro forma balance sheet is as of December 31, 2014, and includes mark-to-market and transaction adjustments. We had final merger consideration of $350 million, which included the issuance of 10 million shares of Hilltop stock, $78 million of cash, and $70 million in existing Hilltop investment in SWS.

Our mark on the loans was approximately $42 million, and we expect loan accretion of approximately $8 million in year one. Our bargain purchase gain currently is estimated at approximately $80 million, and we will also have several other charges related to the integration of these companies, and we will report them to you separately in the ensuing quarters. Looking at the pro forma balance sheet here, we will have $12.4 billion in assets, a loan portfolio of $5.4 billion and total deposits of $7.7 billion, as well as total equity of $1.7 billion.

I thank you, and this concludes our prepared remarks.

(Operator Instructions)

Brady Gailey, KBW.

Hey, good morning, guys.

Hey, Brady.

So I guess, we could start with energy at 6.5% of loans. That 6.5% of the total loans? Or just the noncovered loans?

[Total].

Your question is, why did we tell you 4.5% or 5%, and why is it 6.5%? And we look at it two different ways. The Fed -- the way the Fed looks at it, and what they throw in is the -- their definition, it would be 6.5%. We look at it, what is really attributed to the price of oil and gas, and what is actually related to oil and gas directly, and it's 4.5% -- and that's the way we look at it.

And the difference is between -- well, we got $444 million worth of commitments at the 6.5% level, and we have got $270 million at the 4.5% level. And the difference in there, is based on loans that are secured by oil and gas depots for distribution purposes. In other words, they sell fuel and diesel for trucks and cars. They sell oil products to put in your cars, we have credits on that. We have some credits that are margin accounts, that may be secured by oil companies, but they are 50% margin.

We have one deal in there that is secured by blue chip stocks, but the Fed requires you to put all of that in there. When you take that out, and the way we look at it, we're 4.5%. Now when you look at our classifieds, if you're looking at the big number, we're about 10% classified at the big number, and you look at the smaller number, we're about 15% classified, and we have three credits that are classified that we are watching.

All of them are current, and at this point we don't have any -- think we have any exposure. But that's the difference, and that's the way we look at it, and that's the way we cut it. And we take those things out of there, because we don't feel like the exposure is based on oil and gas. It is just every day distribution.

Okay. All right. Got it. And so, that does include the energy servicing component as well?

Yes, it's got the energy servicing, it's got production. Based on the 4.5% -- I can give you a better figure based on the 4.5%. About 1.5% of that is production type credits, about 3% of that is service related. There's one loan in there that is a covered transaction, and it is classified. It's about $6 million, and we feel like -- at 80% loss, we've got about $800,000 loss if it ever came down that. The rest of them are not covered transactions. They're just within the portfolio.

Okay. All right. And then now SWS is closed and kind of in the books -- at least it will be as of 1Q. So as you all focus on integrating that deal, and as you focus on potentially growing the bank through acquisition, what geography will you look at as far as bank acquisitions? What size are you focusing on? Just give us a little color on what you'd like to see happen there?

We want to focus on bank M&A now, and we want to focus in the state of Texas, and we think that there's a lot of room for us to grow, in just virtually every market. And I think, what we're hoping to look for is asset sizes north of $1 billion to $5 billion-plus.

Okay. And are you all going to be focusing on scratch-and-dent acquisition opportunities, or will it the more healthy bank?

Probably more healthy bank, I think given the landscape, and what we'd want, is probably going to be more strategic and more of a franchise builder.

Okay. And then any update on the civil [investigative] of demand from the DOJ on your FHA originations?

No update.

No update.

Okay. Okay. And then finally, compensation came a little higher than I would have thought. But was there anything -- I know the advisory business had a great quarter, but was there anything else that drove the compensation higher?

I think it's just the broker-dealer and the mortgage company having higher revenues.

Okay. Okay. Thank you guys.

Thank you.

Michael Rose, Raymond James. I'm sorry. We now have Matt Sealy and Matt Olney of Stephens Inc.

Hey, good morning, guys.

Hey, how's it going?

Doing good. I wanted to ask about the investment banking broker-dealer segment. It looks like the income here was up 40% linked quarter, due to the increase fees from advising on debt offerings. But the question is, is this an adequate run rate that we should be expecting going into 2015, or how should we look at this?

I don't think it's an adequate run rate looking into 2015. We had two deals that were really significant deals, one in Houston and one in Detroit, that were some of the bigger fees that we've gotten in the firm. Seasonally, that business is going to be stronger in the fourth quarter. So you expect that, and but I wouldn't expect that type of growth. That's also, that's pre-SWS Transaction. So just kind of looking year-over-year at First Southwest I wouldn't expect that level of growth.

Okay. Great. And also I wanted to ask you one mortgage volumes, kind of trends you are seeing throughout 1Q 2015, given rate are staying pretty low, and seem to be staying that ways. What's your outlook throughout the first half of 2015, and what are you seeing in mortgage volume so far?

Obviously, the 10 year's rate is down, so refinance has kicked back up. And so, mortgage volumes look favorable for the first quarter. Past that, I can't tell you. It's a volatile business, and normally traditionally, second and third quarters volumes are good, [parts] business is good. So right now, I guess, we're enjoying the benefit of the lower10 year rate.

Okay. Well, that's it for me guys. I appreciate it.

All right. Thanks, Matt.

Michael Rose, Raymond James.

All right. Let's try this again. I hung up by accident. How are you guys?

Hey, Michael. How's it going?

Good. Hey, could you just walk us through the adjustments to the balance sheet? It seems like the balance sheet that you're bringing on is a lot smaller. It looks like it has to do with some of the receivables that at least shrunk from the original S-4. Can you just walk us through that, Jeremy?

As far as the pro forma balance sheet?

Yes. Correct, versus the S-4 that was filed back in July. Thanks.

I don't have a reconciliation with me with the S-4 that was filed back in July. But I think that the -- and just kind of looking at what's before me. The major mark-to-market adjustment is going to be in the loan portfolio where you see loans net. And --

Yes, I was looking at the broker-dealer receivables. They were -- in the original S-4, they were about $1.9 billion, and now in the slide deck that you guys filed today, it's about --

Okay. You're just talking about actual results. So that is going to fluctuate. That's largely the stock loan, stock borrower business of SWS and that fluctuates. It can fluctuate a great deal, being at $1.3 billion is relatively low. They typically have it in the -- close to $2 billion.

Okay. That's helpful. (Multiple Speakers).

As far as our --(Multiple Speakers).

No, go ahead Jeremy.

I was going to say as far as the transaction adjustments, I think that most of the balance sheet is pretty much mark-to-market every day. So I think the biggest mark is going to be in the loan portfolio.

Okay, fair enough. And then, on a go-forward basis you guys really haven't disclosed much around what your thought process around cost savings. Do you have any sort of estimates there, and then maybe what you're thinking for earnings accretion from the deal both maybe year one and beyond? Thanks.

We do not have that to disclose at this time.

Okay. And then, one more if I can. Just going back to Brady's question on the energy portfolio. I guess, I am just trying to reconcile what the balances were at the end of the third quarter, versus what they were at the end of the fourth quarter. Because if I use the 5% and then the 6.5%, it looks like there was a decent amount of growth quarter to quarter. But I think I might of missed some of what you said?

There really wasn't much growth. Not much change. We just -- at 4.5%, 3% at 12/31 that was excluding the items I'm talking about. If you add them back in, it goes back up to 6%-something. It's how we report to the Fed, and how we look at it internally. But there wasn't much change.

Okay. So then the 5% last quarter then was that -- ?

5%, was really, probably should have been reported, maybe 4.53% if you just want to get down to the actual figures at 12/31. Those were figures at 12/31.

Okay. So -- ?

So when we said the 5% -- I don't even know when we said that. It was probably during the quarter some time.

Okay. So then maybe energy balance actually went down a little bit then?

Yes. They're down, yes.

Okay. That's helpful. And then, just any -- just anecdotal or kind second derivative impacts from what you guys are seeing, what you are hearing in terms of lower oil prices?

I can say basically, it's early in the game. There's lots of speculation, lots of talk. But I don't think we've really seen any impact at this point. Our loan pipeline still is very viable, and our business is still strong. So in the markets we're in, I don't think we've seen any significant impact at this point. But again, we're early in the game, and we will see how it evolves.

Not being a large energy lender, it certainly won't affect us from that standpoint. But we are all concerned maybe about the trickle down effect -- trickle down effect, it will have maybe on real estate and some of these other things. But right now, we've not seen anything of significance.

Okay. Thanks for taking my question, guys.

Brett Rabatin, Sterne Agee.

Hi, good morning.

Hi, Brett.

This may have been addressed. I got disconnected for a minute. But wanted to just talk about the discount accretion in 4Q, and then just thinking about the kind of the progression, even your thoughts from Southwest in 2015? Can you guys just maybe talk about -- the level in 4Q, a little higher than expected maybe?

And maybe then from here, excluding kind of Southwest, does the quarterly pace kind of drop to more of a low teen number, maybe in the first half, and then fall from there going -- after I guess, the first half of the year?

Brett, this is John Martin. Yes. I think that's a good description. But we are thinking it will be lower during 2015 compared to 2014, as the legacy PCB accretion runs off, and then as we progress through the FNB portfolio.

Okay. And then, I didn't hear any discussion about any potential nonrecurring items that you guys may have incurred in 4Q as you prepared for Southwest? Was there anything in 4Q that may have been unusual besides the MSR write-down?

Yes, the MSR write-down is kind of one thing. I mean, I think what we've listed is -- in the quarter we had a $6 million pretax gain from the SWS investment, from just the accounting of how you treat it when we redeem that. And then, offsetting that is we had a $3 million -- $3.1 million systems write-off, and we had a $1.4 million of SWS M&A expenses.

So that's $6 million minus $3 million minus $1.4 million is $1.5 million of pretax positive for these adjustments. However, we had a -- as we showed in this presentation, a deferred tax asset valuation allowance we put up from a different interpretation on an investment that we hold at First Southwest that resulted in a $2 million tax charge. So if you tax effect the prior adjustments I listed, and then you adjusted for this deferred tax asset, I think I would say, on a net income basis, our adjustments cost us $1 million for the quarter.

Okay. All right. I guess, and then just lastly, thinking about the mortgage banking environment in 2015, and that business. You talked a little bit about seasonality in 2Q and 3Q being better quarters, would it make sense do you think for that division or that business to have better profitability in 2015, aside from any MSR adjustments?

I wish that I could assure you of that. Last year, the first quarter was awful. If you remember the country was frozen, and nobody was able to get out of their house, and we didn't do a whole lot of volume first quarter, and it was awful. Traditionally, in the mortgage business, the first quarter is not good. Traditionally, the second and third quarter are the quarters where you make it up, and then in the fourth quarter it drops off.

Last year was pretty much the way it normally is. So if you can get ahead of the game in the first quarter, and things are traditionally the way they are, it would seem that things would be better.

But there's a lot of questions out there in the economy. There's a lot of question out there as far as what interest rates do? There's a lot of question out there, where personal incomes go up, and there's a lot of questions out there where people build houses and where they buy them.

So if I had a crystal ball, I could tell you. I can just tell you that right now, volumes are better because the 10 year is down, and the refinance deal is back for a while. How long that's going to last? I don't know. So I guess, I'm walking you around the lake, and I'm fixed to jump in, because I can't answer the question. But I'm always optimistic, and we have a good mortgage company.

We were number six in the country in the purchase business last year, which is a real good thing for us. We're the 17th largest mortgage company in the country, and we increased our market share last year, which will tell you because we are strong in purchase, we went from 0.68% to 0.96%.

So that will tell you, we are a good company under a situation where there's a lot less volume out there. So if the volume is up, we're going to get our share of it. If we get our share of it, that profitability should increase, I would think over the year.

And the other thing that I want to say, I am proud of -- and I don't know where it came from -- but Forbe's just named PrimeLending the number four best mortgage company to work for in the country. And I don't know how much we paid for that, who paid for it or what. (Laughter). But it's a pretty nice honor, and it is a good place to work, and it has good people who have been around a long time.

So we have all the stuff, and we are sitting in the right place. So if we can just get that mortgage business or mortgage market and volumes to increase, we're going to get our share it. And we get our share of it, you are going to see the profitability.

Okay. And then just one last one around Southwest, the off-balance-sheet, essentially deposits that that institution has. How much of that do you think you'll bring on? And I know, I've asked you this before, how much of that do you think will bring on balance sheet? And what kind of benefit do you think you're going to get from -- for their off-balance-sheet items?

Are you talking about the FDIC sweep?

Yes.

We have -- I think, combined with First Southwest, we'll have the ability to bring up to $2 billion on balance sheet. They had a very high investment portfolio, and given our [GAAP] position, we've shrunk that down, and shrink it down. So we're pushing some of that out right now. So I think starting off, we're looking at probably utilizing combined, John, a little north of $500 million -- (multiple speakers).

A little north of $600 million right now.

$600 million, and over time I think we transition to have more.

Okay. Great. Thanks for all the color.

Thank you.

And ladies and gentlemen, that will conclude our question and answer session. And this also concludes the Hilltop Holdings fourth-quarter 2014 earnings conference call. Thank you for attending today's presentation. You may now disconnect your lines.