William Furr
Thank you, Jeremy. I will start on page 5 as Jeremy discussed for the fourth quarter of 2024 hilltop reported consolidated income attributable to common stockholders of $35.5 million equating to $0.55 per diluted share.
Fourth quarter results reflect a few notable items including a $5.9 million provision for credit loss recapture which reflects the combined impact of positive credit migration during the period and an improved economic outlook versus the third quarter.
In addition, during the quarter, we recognize a negative valuation adjustment of $5 million related to an owned office facility that management intends to exit and sell while we are making progress on the sale, it has not closed. And as a result, Hilltop may have additional adjustments related to this transaction in future periods.
Lastly during the period. Btop recognized tax benefits related to various state income tax filings and certain discrete items. In the fourth quarter. The impact of these tax items equates to approximately $3 million an after tax basis. Further, these tax items reduced the GAAP effective tax rate in the quarter by approximately 7% to 14.2%.
I'm moving to page 6 for the full year of top2,024 reported consolidated income attributable to common stockholders of $113 million equating to $1.74 per diluted share during the year. That interest income declined by 11% and that was largely all set by lower provision expense in 2024 which equated to approximately $1 million for the full year.
I'll address the allowance for credit losses in more detail. Later in my comments, a few additional items of note while not included in the 2024 results we disclosed on January 15th on form A K that we had redeemed all outstanding senior notes that were due to mature on April 15th of 2025. These notes were redeemed from cash on hand.
In addition, Hilltop announced in a press release on January 27th and our Merchant Banking Group, Hilltop Opportunity Partners has agreed in principle to sell its ownership position in Mosier Energy Systems. The after tax gain for this transaction is estimated between $23 million and $27 million.
It is important to note that this transaction is expected to close during the first quarter of 2025 but importantly, has not closed at this time. The estimate provided is subject to change if this transaction were to be modified in any material manner. Prior to close turning to page 7 tops, allowance for credit losses decreased during the quarter by $9.8 million to 101 million.
While management continued to leverage the moody's S five scenario. In its assessment of ACL, the macroeconomic outlook improved in the fourth quarter reflecting a lower probability of recession than in prior periods. Further, the portfolio experienced client specific improvements in overall risk score which additionally reduced the ACL during the period. These benefits were only somewhat offset by higher specific reserves related to certain individually evaluated credits.
Lastly, the ACL roll forward includes net charge offs which largely reflects our best estimate of loss for one of the auto note portfolio credits we've discussed over the last few quarters allowance for credit losses of $101 million yields an ACL the total loans. HFI ratio of 1.27% as of December 31st 2024 I'll address additional credit trends later in this presentation as we've seen over time. ACL can be volatile as it's impacted by economic assumptions as well as changes in the mix and make up of the credit portfolio.
We continue to believe the future changes in the allowance for credit losses will be driven by net loan growth in the portfolio, credit migration trends and changes to the macroeconomic outlook over time.
Turning to page 8 net interest income in the fourth quarter equated to $105.5 million and included $1.1 million of purchase accounting accretion as expected and margin declined versus the third quarter of 2024 falling by 12 basis points to 272 basis points while minimizing them compression remains a focus. We are pleased that net interest income remains stable versus the third quarter of 2024 levels as overall deposit cost declined once the Federal Reserve began moving the federal funds rate lower.
Also, of note, average excess cash reserves increased to just under $2 billion as we experienced growth in client deposits and declines in loans held for sale and loans. HFI growth in cash levels did pressure them and increases overall asset sensitivity for the organization.
Turning to page 9, we have more discussion topics related to NII. In the upper left chart, we provide detail into our latest sensitivity analysis for NII related to parallel and instantaneous shocks and interest rates. As is noted in the chart top remains approximately 6.5% asset sensitive. In the F 100 scenario. Over the past few years, we have reduced our asset sensitivity by approximately 50% from 12% to 6.5%.
Going forward. The most significant driver of N I performance will be driven by our ability to manage interest bearing deposit data, which is currently modeled at 54% through the cycle as it relates to deposit betas. We have achieved a 62% interest bearing deposit beta in response to the Federal Reserve's 1st 100 basis points of rate reductions.
While this beta level is encouraging, we remain focused on managing deposit costs to support both improved profitability and long term deposit growth in the lower left of the page. We highlight that our longer term target for asset sensitivity is 2% to 4%. And we're executing on a number of strategies to move our export exposure to these levels in a prudent and methodical manner over time.
In addition, the tables on the right of the page highlight the interest rate reset schedule for our variable rate loans at Plains Capital Bank. As is shown the majority of the variable rate portfolio will reset within 30 days following any rate action set forth by the fed turn to page 10.
Fourth quarter. Average total deposits are approximately $11 billion remaining largely stable with the fourth quarter of 2023 on an ending balance basis deposits increased by $274 million from the third quarter of 2024 driven largely by growth from existing clients.
As a result of our ongoing pricing efforts, average interest bearing deposit costs declined to 327 basis points. The increase of 35 basis points from the prior quarter. Currently we expect that interest bearing deposit costs to move somewhat lower over the coming quarter and then stabilize until we see additional movement by the Federal Reserve on short term rates.
Turning to page 11 total non interest income for the fourth quarter of 2024 equated to $196 million. Fourth quarter, mortgage related income and fees increased by $4 million versus the fourth quarter of 2023. Driven by improvement in both lock and closed volumes versus the same period in the prior year.
All signs of improvement in our mortgage business are emerging. Some of the significant macro challenges persist whereby the combination of higher interest rates, home price inflation and a somewhat limited housing supply continue to press your volumes and margins. Versus the same period prior year, purchase mortgage volumes increased by $212 million or 12%.
And refinance volumes increased by $226 million during the fourth quarter of 2024. And on sale margins remained relatively stable with third quarter levels for loans sold to third parties during the fourth quarter, higher third party sweep fees drove the increase in securities and investment fees and commissions. In addition, structure finance continue to produce strong results during the quarter as overall capital market activity supported margins even while overall lock activity declined to $667 million.
Of note, same period prior lock volumes were substantially impacted by certain states providing additional state funding to support their state housing authorities and down payment assistance programs. As we've noted in the past, it's important to recognize that both fixed income services and structured finance businesses at Hilltop securities can be volatile from period to period as they're impacted by interest rates. Overall market liquidity and production trends turning to page 12 non interest expenses increased from the same period in the prior year by $12 million to $263 million.
Driving the increase in non interest expense or higher variable compensation expenses principally within the mortgage and securities. Businesses also note the negative valuation adjustment that I referenced earlier is included in the expenses other than variable compensation. And again equated to $5 million in the fourth quarter of 2024.
Looking forward, we expect expenses other than variable compensation to remain relatively stable between $185 million and $190 million per quarter. As the ongoing focused efforts related to streamlining our operations and improving productivity continue to support head count and improved throughput across our franchise helping to offset the ongoing inflationary pressures that persist in the market.
Moving to page 17th quarter, average HFI loans equated to $7.9 billion a period ending basis. HFI loans declined versus the third quarter of 2024 by $29 million driven by a modest pay down activity in our commercial lending business.
While the economy in Texas remains resilient, we do expect that the competition for funded loans will remain very intense as we look into 2025. We are expecting full year average bank loan growth between two and 5%. This outlook includes the bank's retention of prime lending mortgage loans. I'm moving to page 14 as it's shown in the chart on the bottom left of the page that charge off for the fourth quarter equated to $3.9 million.
As noted earlier, the most significant charge off in the period related to one of the large auto note finance credits which equated to $3.6 million for the full year of 2024 net charge offs equated to $11.2 million or 14 basis points of period. In HFI loans, we believe the credit quality remains stable across the portfolio and do not currently see any large systemic areas of concern.
However, we are monitoring our loans and borrowers closely as the persistence of higher interest rates and potentially lower real estate utilization rates and commercial real estate could have a negative impact on our clients and our portfolio. As is shown on the graph at the bottom right of the page, the allowance for credit loss coverage of the bank into the quarter at 1.33% including mortgage warehouse lending.
We at age 15 as we move into 2025 there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. That's it. We have provided our current outlook metrics for the coming year as we've noted in the past, we're pleased with the work our team has delivered to position our company for long term success.
Our outlook for 2025 reflects our current assessment of the economy and the markets where we participate further as the market changes and we adjust our business to respond. We will provide updates to our outlook on our future quarterly calls operator that concludes our prepared comments and we'll turn the call back to you for the Q&A section of the call.
Operator
(Operator Instructions) Your first question is from Michael Rose from Raymond James. Your line is now open.
Michael Rose
Hey, good morning guys. Thanks for taking my questions. Maybe we can start on the on the merchant. Good morning. Maybe we could just start on the on the merchant banking game and, and obviously that will add to the capital. I know you guys just announced the buyback. Any plans for anything like an ASR like you've done in the past or to be maybe a little bit more aggressive with the buyback at this point, just trying to, trying to appreciate the capital priorities and if there's been any changes just given the expected gain, thanks.
Jeremy Ford
The priorities haven't changed because of the specific gain. You know, I think that, we did just got authorization for $100 million share repurchase for the program for the year. It's not an A sr it's just going to be during open windows. And so we're certainly evaluating that. And, and, I think that, we're hoping to be active with our share purchase to our authorization this year last year, we were, we started the year and stronger and did about $20 million but we held off because we had these looming debt maturities that we wanted to make sure we had, optimal flexibility for.
Michael Rose
Okay, that's that's helpful. And then, well, maybe if you could just help me better appreciate the loan growth outlook, it is, it is fairly wide. Can you just give us some assumptions around, what you're assuming for, for paydowns? I know the auto book is still, you know, will be a somewhat of a headwind although declining. Can you just talk about, you know, borrower activity, pipeline, things like that? It seems like there's a lot of optimism in the market, but we haven't really seen it come through in the actual industry data yet. So just, just trying to better appreciate what could, drive you to the lower end versus the upper end? Thanks.
William Furr
Yes. So the, you know, the range is a little wide, we're here at the early part of the year, seems to be, a pretty, pretty substantive bid and ask around where where the feds going to kind of land the plane here in terms of this, this rate cycle. So, trying to, trying to reflect that as well, I think we've seen pipelines build really through, midway to the third quarter into the fourth quarter. Certainly that's continued here from a commercial commercial lending perspective.
That said just for us, a lot of our, a lot of our activity is as, commercial real estate oriented. So that means, we'll book the commitment, it'll take, you know, our customers will then work through their, their equity installations and then they'll start the borrowing process. So while we got strong pipelines and strong activity, that may not manifest itself in terms of fundings on the balance sheet for a couple of quarters. And so our, our outlook kind of captures that as well. We did see, as we noted on prior calls, some softness in the late 1st and 2nd quarter last year, which are kind of causing a little bit of a slower start.
As you can see, we're also expecting to retain loans that are originated at prime mortgage loans. We expect that retention to be $10 million to $30 million per month. We evaluate that on an economic basis. So it's not a, it's not an auto drive matter in the context of just kind of turning it on at a level and, and forgetting about it, we will evaluate pricing will evaluate the overall return profile. And so that range in and of itself can we put you anywhere from $120 million retained to $360 million retains. So those are the kind of things that start to put you within the range 2% to 5% of the entire portfolio and some of the variability. But as we have, we're, we're going to be thoughtful and prudent about how we put capital work both from a credit perspective, but also a duration and asset liability perspective as it relates to mortgages we're going to retain.
Michael Rose
Yeah, that's a good point on the mortgage retention because I think it was zero to $20 million last year and now you're, you're bringing it up a little bit. May maybe just, just maybe just finally for me, I'm I'm sorry if I missed some of the margin commentary but, but appreciate the NII guide. If we don't get the two rate cuts that you have built in w would you be closer, would you be at the lower end or could you potentially be, less than that, just given some of the competitive dynamics or is that range kind of contemplate, somewhere between zero and two? And is that the way we should kind of think about it or does the guide really just kind of encapsulate the two cuts? Thanks.
William Furr
Yeah, the guy, the guy encapsulates the two cuts across, across the year. You know, we're, we're asset sensitive. So candidly less cuts necessarily improves net interest income as a, as a practical matter. So, from our perspective, we'll, we'll wait and see where the FED is. But the guidance we've got in place right now has kind of 22 FED cuts, one in the middle of the year, one in the third quarter. And, and we'll continue to watch those.
We're going to continue to make progress on overall deposit cost. I do think it's important to, to note we've, we've got our CD portfolio which we had structurally moved, to shorten up over the last 12 to 18 months. We've done that. The largest portion of that portfolio sits in kind of a 90 day product over the next 90 days. We've got about $650 million of CDs that come to mature. Those have got a blended average rate on them around 430 basis points. And the current offering for that product is $395 million.
So we're going to continue to see just through the natural matriculation of the balance sheet as well as some of the decisions we've made. As to how we position the liability side, we're going to continue to see some of that benefit, which was part of the comment around. We expect to see deposit rates continue to fall through the through the first quarter and they likely start to stabilize up until up until we see the fed, make a definitive move from here.
Michael Rose
Perfect. Thanks for the call. I appreciate you taking my questions.
William Furr
Yes, sir. Thank you.
Operator
Thank you. Your next question is from Stephen Scouten from Piper Sandler. Your line is now open.
Stephen Scouten
Yeah, thanks. Appreciate it guys. I'm curious how to, how you guys are thinking about structured finance revenues for 25 obviously, really nice year in 24. And you guys talked about some of the down payment assistant programs and the benefits there. What, what's, what's that kind of environment looking like as you, as you see it today? And, and do you feel like that can continue to grow off of this? Let's call it $100 million figure from 2024.
William Furr
So I So, well, good morning and, and I think, from a structured finance perspective, as we've noted, it's benefited for the last couple of years from, you know, one of our, one of our larger state housing authorities continuing to in the state putting in additional funds to support their down payment assistance program. We don't have any control of that. They obviously operate independently in that regard. And so as a result, if they chose to continue to support the program through their annual budgeting process, we obviously believe that would be favorable to, the constituents in the state.
But also our structure finance business. If they didn't, we would obviously expect revenues and structured finance would be lower as a result of, of, of not having had that support versus the prior couple of years where we've seen it. So, that's a little bit of an unknown. We certainly can't comment on any of the state budgeting processes. But that, that really is an added variable that's outside of kind of capital markets or overall product, wherewithal.
Stephen Scouten
Got it. Okay. And then, it's like you said, it's a little unclear maybe where, where rate cuts, how many of them we get when they come and so forth. But how do you think about the asset sensitivity of the balance sheet over the longer term? What, what do you, I think you've said before, maybe reducing that asset sensitivity over time, increasing retention of some of the hybrid mortgages potentially to do that kind of what's the, what's the goal and the target and what beyond that, those hybrid mortgages might you change around the balance sheet to, to inflect those those differences?
William Furr
Yes. So, in my comments, I, we noted in here on page 9 of our document, we show our, our, our longer term targets kind of 2% to 4% asset sensitive. Obviously, our mortgage company provides some counter cyclical, more liability sensitive components to it in terms of overall income profile. But as it relates to NII 2 to 4% asset sensitive, you can see here, we're, we will have started and have restarted the investment in our securities portfolio.
It's worth noting that portfolio peaked at about $2.75 billion. Currently has a book value of about $2.25 billion and we'll reinvest those cash flows. I think we've reached a point where the reinvestment opportunity provides a better return and more stable earnings profile and the cash yields necessarily would. So we're, we're, we're starting that process.
As you noted the increase the retention of the 35 and seven year hybrid fixed rate mortgages. We believe the believe those products both from a profile perspective as well as a as an overall credit perspective, fit our profile from a long longer term perspective. You'll see in our guidance, we did increase the retention level expectations to $10 million to $30 million per month.
And then we'll continue to kind of move. If our deposit base remains strong, we'll continue to kind of move broker dealer, suite deposits out of out of Plains Capital Bank back to the broker dealer and they can put them to work in their in their third party bank program. So those are the types of things we're doing right now to start to drive and push that asset sensitivity down.
As I noted in my comments, we have seen cash levels increased substantively ending the period at the bank. It's just over $2 billion and obviously, cash excess cash reserves of the fed have a have 100% beta, significant asset sensitivity. So as we continue to work that cash level down to our target level, which is we've stated is 300 to 750 million versus the 2 billion, we'll see that asset sensitivity level decline over time. But as I, as I noted in my comments, we're, we're not, we're not looking to kind of move the balance sheet quickly, we move it over time and prudently we focus on return and long term positioning and it'll that you will continue to evolve as the economic environment evolves.
Stephen Scouten
Got it. That's extremely helpful. Thank you. And then last thing for me is just, there's been maybe a little bit more volatility around the quarter to quarter provision than, than maybe I'm, I'm used to seeing sometimes and you know, a couple reversals and then, there's a larger provision in the second quarter and you know, some of that's episodic credit, obviously, I know, but can you kind of talk about how you guys think about the provision? And if I don't know if you have maybe a more fluid views than, than others may have, I'm just trying to get a feel for what kind of has caused some of that volatility around the build versus the reversals and kind of how you think about it in the month.
William Furr
Yeah. So, you know, obviously, we feel like we, we're, we're kind of following the allowance for credit loss guidance from a GAAP perspective adopting and adapting a economic outlook each, each period through our controls and governance process, we believe kind of most reflects where management believes the economy is going.
Obviously, there's been some volatility from an economic perspective. So that's, that's one part and you should see that I think universally, it's worth noting we only use one scenario. So we don't we don't wait if you will or pro ability adjust to multiple scenarios which, which may allow, others. And I can't speak to that, but it may, may allow others to, to, to have a little less variability there.
But we do what we do leverage one scenario because we think that that generally provides the cleanest, cleanest perspective. The other part has been the auto no portfolio which firstly, as we noted, late last year, started to manifest itself, we took some significant reserves. We then started to through the workout process, leasers reserves. As I noted earlier, we had a net charge off which obviously has a has a has a swing on the overall reserve balance as well. So that portfolio activity throughout the course of this year is also kind of created some variability that might have been outside of outside of normal.
Stephen Scouten
Got it. Yeah, extremely helpful, probably right about those, those differences. So, thank you.
William Furr
Thank you.
Operator
Thank you. Your next question is from Woody Lay from KBW. The line is now open.
Woody Lay
Hey, good morning guys.
William Furr
Good morning.
Jeremy Ford
Good morning.
Woody Lay
Just one more follow up on the asset sensitivity and the in the bond book, do you have how much cash flow you're expecting from the security portfolio in 2025? And how should we think about the incremental yield pick up there?
William Furr
Yeah, so the cash flows, it's an estimate but cash flow is between $250 million, $300 million on a full year basis. You know, think about the weighted average yield on the portfolio at a right at right at 310 basis points. And you know, the reinvestment yield today, and I think that's where it becomes difficult, but we believe the reinvestment yield today will be between, 450, 475 basis points. Obviously, as the rate, as the rate paradigm shifts that could change. But we believe there's probably about 150 basis points of pickup in positive carry on that roll over balance as we as we go throughout the year.
Woody Lay
Okay. That, that's helpful. And then I wanted to shift over to deposits. I mean, it was a, it was a really strong quarter for deposit growth, it just any color on the on the trends there.
William Furr
You know, I think during the, during the quarter and really during the second half of the year, we had had some strong customer activity both in terms of just normal flows and activity. But also we did have some, I'd say episodic events where we had customers that were able to sell their businesses, liquidate properties, exit, exit properties and the like.
And so that did drive up kind of year end year end balances, we expect to see through the first quarter, some of that, normalize as those customers start to put those funds to use either new products or move them out for wealth management and the like. So we do think, we probably hit a high watermark at 12/31. We'll start to see that normalize in the first quarter for, normal reasons like dividend distributions and payments and incentive payments and the like tax payments.
But also, some of those, some of those larger more episodic events, those customers starting to make longer term decisions where around where the where that cash that said, I do think we continue to focus on growing our Treasury services platform as well as further integrating with our customers around their operating accounts and the like. So it is a foundational strategy and approach for us to continue to grow deposits, which we'd expect to do. But that said we did have some episodic favorable events in the in the 4th, 3rd and 4th quarter. That kind of move deposit balances higher.
Woody Lay
Got it. And then lastly just shifting over to credit criticized saw a nice step down, just any detail you could provide on upgrades you saw there.
William Furr
Yeah, I mean we saw a as I noted in my comments, I mean we saw a few very specific upgrades. One in particular was our commercial real estate space where we, we've had some customers and some property, we had some customers put forth some additional capital there and and, and cash flows, started to started to improve as a result of that. So, you know, this is one of those processes that we evaluate each quarter. And and again, as I noted, we just, we look across the portfolio, we don't see any large systemic credit risk exposures in place. But we continue to monitor each credit closely kind of one by one. In this particular scenario though, it was one of our real estate real estate customers that received an upgrade in the period.
Woody Lay
All right, that's all for me. Thanks for taking my questions.
Operator
Thank you. Your next question is from Jordan Ghent from Stephens. Your line is now open. Hello, Jordan, your line is open. Are you on mute? Hello, Jordan? It seems like we lost Jordan.
There are no further questions at this time. The question-and-answer session is now closed.
Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
