Hey, welcome to the Hilltop Holdings first quarter 2019 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to now turn the conference over to Isabelle Novikov. Please go ahead.
Good morning. Joining me on the call this morning are Jeremy Ford, President and Chief Executive Officer, and Will Furr, Chief Financial Officer. 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, acquisitions, future plans, and financial condition, are forward-looking statements. These statements are based on management's current expectations concerning future events that, by their nature, are subject to risks and uncertainties. Our actual results, capital, and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today, and those included in our most recent annual report and quarterly report filed with the SEC. Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information.
Additionally, this presentation includes certain non-GAAP measures, including taxable-equivalent net interest margin, pre-purchase accounting taxable-equivalent net interest margin, 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 of this presentation, which is posted on our website at ir.hilltop-holdings.com. Now I would like to hand the presentation over to Jeremy Ford.
Thank you, Isabelle, and good morning. For the first quarter of 2019, Hilltop reported net income of $38.8 million, or $0.41 per diluted share, which represents a 63% increase compared with the $0.25 reported during the same quarter last year. Additionally, Hilltop delivered a return on average assets of 1.2% and a return on average equity of 8%. This quarter's strong results are representative of both our commitment to diversified and prudent growth and the hard work by our teams to drive operational efficiencies throughout the organization. This quarter, average loans held for investment, excluding broker-dealer loans, grew by 10%, and average deposits grew by 5% versus the prior year.
While Hilltop's consolidated net interest margin contracted modestly on a linked-quarter basis due to lower purchase accounting and a reduction in non-accrual interest recoveries, it expanded by 17 basis points from last year, driven by the benefit of higher market rates coupled with disciplined deposit pricing in addition to higher yields on investment securities at the non-bank subsidiaries. During the quarter, lower rates and recent alignment efforts between the capital markets and structured finance departments yielded a net revenue increase of $28 million versus the prior year at Hilltop Securities. We continue to remain focused on value creation, with our book value per share increasing by 6% versus the prior year to $21.23, and our capital structure with a Tier 1 leverage ratio of 13.2%.
Our credit quality at the bank evidences our risk management efforts as net charge-offs in Q1 2019 of only $1.6 million equated to 10 basis points of average loans, and our non-performing loans decreased to $30.9 million from $34 million at year-end 2018. During the quarter, we had two significant items to call out, including expenses associated with the previously announced leadership changes and costs related to efficiency initiatives across the organization. Moving to page four. Pre-tax income at PlainsCapital Bank increased by $2.6 million or 7%, driven by higher loan yields, partially offset by lower purchase accounting accretion.
Our lenders and credit team continued to do an outstanding job of managing the portfolio as non-performing assets declined to $54 million or 1.05% of bank loans, down from 1.58% at Q1 2018. Of note, income generated at the bank from the warehouse line to PrimeLending declined commensurate with the reduction in mortgage origination volumes. Mortgage pre-tax income of $2.9 million for the quarter improved from a pre-tax loss of $2.7 million in Q1 2018 was a result of relatively stable gain on sale margins of 330 basis points and a reduced fixed cost base. Cost improvements were from lower headcount and other operational enhancements made during the second half of 2018.
As we expect volumes to remain under pressure, we will continue to focus on efficiency and profitability. The broker-dealer reported a very strong quarter, with a pre-tax margin of 15.8% on increased net revenues of 28% versus the prior year. The decline in market interest rates, combined with ongoing investments in the business, yielded strong trading gains. The compensation ratio improved to 60.6% from 64.4% in Q1 2018. Importantly, Brad Wing has joined us in the quarter to become the President and CEO of Hilltop Securities. Brad succeeds Hill Feinberg, who remains with Hilltop Securities as Chairman. We are extremely grateful for the momentous contribution Hill has made to build the quality firm we have today, as well as for the contribution Hill will be making to support its continued growth.
Likewise, we are very excited to have such a high caliber leader with deep expertise in our core businesses, and look forward to working with Brad and the Hilltop Securities team to advance the capabilities of our firm. Our insurance business reported pre-tax income of $6.8 million for the quarter with a combined ratio of 86.4%. The year-over-year improvement was aided by fair market value gains in the investment portfolio during the current period. Moving to page five. Our platform for growth and efficiency initiatives includes a broad set of projects to enhance our platform and streamline operations with the goals of lowering operating costs and building a foundation for future organic and acquisitive growth. These projects include enhanced business operations, strategic sourcing, and shared services.
While we expect 2019 to be a heavy investment year and the benefits to largely materialize in 2021, we are encouraged by the progress being made. For example, the work Todd, Steve, and the rest of the PrimeLending team did last year to right size the middle and back office while enhancing branch performance has started to pay off better than expected and are reflected in this quarter's lower cost and improved profitability. Our IT organization has been working diligently to unify the newly formed shared services department, with that, has identified contracts and services for consolidation. We are seeing opportunity for us to leverage the size and scale of the Hilltop businesses by combining data centers and bundling core business software.
Another example of our shared services effort is the recent realignment of our risk management department into two cohesive units, operational and risk compliance, and enterprise risk and regulatory. We have realized synergies by eliminating the duplication of roles and responsibilities, and believe this new model will enhance our risk management and capabilities across the entire company. Overall, I am very grateful for the commitment of our business leadership and shared services teams, as well as the response within the organization for what we are building. Finally, I would like to give a heartfelt thank you to our former Vice Chairman and Co-Chief Executive Officer, Allan White, for his outstanding leadership over the past 31 years. Allan retired on April 1st and leaves behind a lasting legacy of building relationships and a commitment to culture. In 1988, Allan founded PlainsCapital Bank with one branch in Lubbock and $160 million in assets.
Because of his leadership, Hilltop today has $13.7 billion in assets with four complementary businesses and 5,100 dedicated employees. Allan has been a great partner, dear friend, and mentor to me and so many others in our organization. We wish him well in his retirement. I will now turn the presentation over to Will to walk through the financials.
Thank you, Jeremy. I'm starting on page six. As Jeremy discussed, for the first quarter of 2019, Hilltop reported $38.8 million of income attributable to common stockholders, equating to $0.41 per diluted share, representing growth from the prior year period of 63%. During the first quarter, Hilltop's provision for loan losses was approximately $1 million. During the first quarter of 2019, we released the remaining $2 million loan loss reserve related to Hurricane Harvey, as the clients that were previously identified as at risk have seen sufficient improvement in their business performance to remove this reserve. The bank did not incur any credit losses related to Hurricane Harvey. The first quarter provision includes $1.6 million of net charge-offs, or 10 basis points of average bank loans.
Credit quality during the quarter remained solid, and while we monitor our credit portfolio very closely, we do not currently see any industry or concentrated exposures that are experiencing material deterioration at this time. During the first quarter, revenue related to purchase accounting accretion was $8.6 million, and expenses were $1.9 million, resulting in a net purchase accounting pre-tax impact of $6.7 million for the quarter. It is notable that purchase accounting-related expenses declined $3.9 million from the prior year period, principally driven by the absence of any FDIC asset amortization. In the current period, the purchase accounting expenses largely represent amortization of deposit and other intangible assets related to prior acquisitions. Related to the purchase loan accretion, as the purchase loan portfolio balances continue to decline, we expect scheduled interest income related to purchase loan accretion to average between $4 million and $6 million per quarter during 2019.
Hilltop's capital position remains strong with a period-end Common Equity Tier 1 ratio of 16.75% and a Tier 1 leverage ratio of 13.22%. Moving to page seven. Net interest income in the first quarter equated to $109 million, including $8.7 million of purchase loan accretion. Net interest income increased $6 million, or 5%, versus the same quarter in the prior year. The growth in net interest income was driven by asset growth, principally loan growth, which includes the acquired assets in Houston, and an improvement in net interest margin, which expanded by 17 basis points versus the same quarter in the prior year.
Net interest margin equated to 3.69% in the first quarter, including 32 basis points of purchase accounting accretion. The pre-purchase accounting taxable-equivalent net interest margin equated to 3.38%, an improvement of 21 basis points versus the same period in the prior year. While loan yields have increased as compared to the same period in the prior year, the benefits have been somewhat offset by higher deposit costs. We remain extremely focused on managing and growing deposits, as well as managing closely the rates we pay our clients. As expected, we have seen deposit betas continue to increase even as the Federal Reserve appears to have paused moving rates higher. Hilltop's cumulative beta for interest-bearing deposits from December of 2015 has been approximately 43%. Since the first quarter of 2018, Hilltop's interest-bearing deposit beta has been approximately 55%.
Given the continued increase in the current period betas, we continue to expect that our overall through-the-cycle betas will move higher and therefore closer to our model through-the-cycle beta levels of 50%-60%. With the recent decline in the 10-year rates, which generally align to mortgage origination rates, we expect that loan held for sale yields will decline from the first quarter 2019 levels. While we do believe these factors will continue to pressure the pre-purchase accounting taxable-equivalent net interest margin throughout the remainder of 2019, we are increasing our full year pre-purchase accounting taxable-equivalent NIM outlook to 3.25% ±3 basis points. We will continue to revisit our assumptions based on the outcome of future Federal Reserve rate movements, yield curve shifts, and asset and liability flows across the portfolios.
Quarterly average net earning assets have remained relatively stable versus the same period in the prior year, increasing by approximately $52 million. While the change in average balances has been modest, a mix shift has occurred as HFI loan growth, coupled with the growth in high-quality taxable securities, has been offset by lower loans held for sale, lower repo securities, and lower securities borrowed balances. These shifts reflect both seasonal shifts in business activity for the securities borrowed, as well as lower overall mortgage origination activity as it relates to loans held for sale. I move into page nine. Total non-interest income for the first quarter of 2019 equated to $252 million. First quarter mortgage-related income and fees declined by $8 million versus the first quarter of 2018.
During the first quarter of 2019, the competitive environment in mortgage banking remained intense as Hilltop's mortgage originations volume declined by $513 million or 17% versus the same period in the prior year. While mortgage volumes were challenged, gain-on-sale margins remained relatively stable during the first quarter at 330 basis points. With the recent decline in the primary mortgage rate, we did see modest improvement in production trends late in the quarter. We expect that origination volume for the remainder of 2019 will be in line with 2018 production levels. We also expect that gain-on-sale margins have stabilized and will remain within the current range over the coming quarters, assuming consistent market conditions.
Other income increased by $28 million, driven primarily by improvements in sales and trading activities in both capital markets and structured finance businesses at Hilltop Securities. Favorable market conditions resulted in a 26% increase in trading volume, improved secondary spreads, and an 8% increase in structured finance mortgage-backed securities volume. I'm turning to page nine. Non-interest expenses increased from the same period in the prior year by $1 million to $309 million. As Jeremy mentioned, we did have a set of significant charges related to the previously announced leadership changes equating to $8 million. We recognized $700,000 of charges related to ongoing efficiency initiatives occurring across Hilltop. Related to the leadership changes, we do not expect further charges related to these announcements.
Over the past 12 months, we have continued to make progress in aligning our businesses to the current market conditions and driving efficiencies across the franchise. As a result of these efforts, total FTE have declined by 304, which reduced salaries by $3 million versus the same period in the prior year. Variable compensation increased by $2.6 million compared to the same period in the prior year, driven by growth in net revenues at the securities business, somewhat offset by decline in mortgage origination-related commissions expense. Further, Hilltop incurred $2.5 million in costs related to ongoing core systems enhancements, and we do expect that these related expenses will increase for the remainder of 2019. We continue to position our businesses for long-term success and may take additional efficiency-related charges in the future. I'm moving to page 10.
Total average HFI loans grew by 8% versus the first quarter of 2018. Growth versus the same period prior year was driven by loans acquired in our Houston market during the third quarter of 2018, an increase in real estate lending, and growth in our mortgage warehouse lending business. Based on the current production trends, competitive environment, our outlook for paydowns throughout the year, and our focus on high-quality, conservative underwriting, we expect full year average HFI loans to grow 4%-6% in 2019. Turning to page 11. We have added this new asset quality slide to our presentation to highlight recent credit trends and coverage ratios.
As previously noted, and as shown on the chart on the top right of the slide, the businesses have maintained solid credit quality as non-performing assets have declined approximately $30 million from the same period in the prior year. In reference to the chart on the bottom right of the slide, we highlighted our allowance for loan loss to loans held for investment ratio equates to 90 basis points at the end of the first quarter of 2019. It is important to note that we maintain approximately $95 million of remaining discounts across the purchased loan pools. These discounts provide additional coverage against future losses. Moving to page 12. Average total deposits are approximately $8.3 billion and have increased by $432 million versus the first quarter of 2018, including the acquired deposits in the Houston market.
Interest-bearing deposit costs have continued to increase as competitive pressures remain. Clients are actively seeking higher rates of return on their deposits by migrating monies from non-interest-bearing and savings products into higher-yielding money market, CD, and investment products. I'm moving to page 13. During the first quarter of 2019, PlainsCapital Bank continued to demonstrate solid improvement in profitability, generating $42 million of pre-tax income during the quarter. The quarter's results reflect the benefits of the growth in the Houston market, the aforementioned release of the Hurricane Harvey reserves, which equated to $2 million, and an improvement in the efficiency ratio versus the prior year period, which was driven by revenue growth. The focus at PlainsCapital remains consistent: provide great service to our clients, drive profitable growth while maintaining a moderate risk profile, and delivering positive operating leverage by balancing revenue growth and expense efficiency. Turning to page 14.
PrimeLending generated a solid pre-tax profit of $3 million for the first quarter, driven by the efficiency efforts that the leadership team at PrimeLending executed during the third and fourth quarters of 2018. While origination volumes declined by 17% versus the same period in the prior year, the combination of back-office efficiencies and branch performance management has yielded significant reductions in operating expenses, which declined by approximately $8 million versus the same period in the prior year. Further supporting the improved results is our focus on pricing and fees. Mortgage origination fees have increased from the same period in the prior year by 29 basis points, which yielded a small increase in fees versus the prior year, even as origination volumes decline. The focus for PrimeLending is to generate profitable mortgage volume, continue to focus on operational efficiencies, and successfully launch the new mortgage loan operating system in 2019.
Turning to page 15. Hilltop Securities had a solid start to 2019 as market conditions improved from the fourth quarter of 2018 and the investments that have been made in structuring sales and distribution are beginning to yield returns. The securities business earned $16 million of pre-tax income, driven by strong trading gains in the capital markets and structured finance businesses. While activity was strong in the quarter, results from both of these businesses can be volatile as market rates, spreads, and volumes can change significantly from period to period. Related to public finance, while revenues did improve modestly versus the same period in the prior year, we are seeing improved business activity and expect 2019 results to continue to improve. I'm moving to page 16.
National Lloyds reported a $7 million pre-tax profit for the quarter as the fair market equity marks in the quarter yielded a $1.2 million gain versus a $1.4 million loss in the same period in the prior year. During the first quarter of 2019, National Lloyds did distribute $21.5 million in dividends to Hilltop, bringing the total dividends since 2017 to $68 million. I'm moving to page 17. For 2019, we're maintaining the full year outlook for our key balance sheet and income statement items consistent. As previously noted, we are increasing our pre-purchase accounting taxable-equivalent NIM outlook by five basis points. That does not change our full-year outlook range for net interest income growth. The outlook represents our current expectations with respect to the markets, rates, and overall economic activity.
These, however, may change throughout the year. We will provide updates as necessary on our quarterly calls going forward. Operator, that concludes our prepared comments. We'll turn the call over to you for Q&A.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question today comes from Michael Young with SunTrust. Please go ahead.
Good morning, everyone.
Morning.
Michael.
I wanted to start off just on the broker-dealer. Obviously good performance this quarter, kind of snapping back from a tough year last year. Can you maybe just give us an update on your total revenue outlook for the year and the pre-tax margin that you've provided in the past? Is that at a higher rate now, you think, for the full year?
My view is I gave the $360-$370 last quarter. I'd probably just look to the higher range of that just to be conservative. $370, maybe $380. Pre-tax margin for the year, 11% plus, maybe up to 14%. I'd say that it's early. We had a real pop in the structured finance business late in the third quarter, I'd be a little tempered that this is not a trend.
Okay. Could you maybe just talk about at least within the structured finance business or anywhere else within the company as a whole where just the drop in 10-year rates really drove some additional revenue or margin that we should not necessarily run rate or expect going forward at the same magnitude?
Yeah, I mean, that's what we're talking about. In that business, we're basically net long on this TBA mortgages. When the 10-year dropped, that gave us a pop, I think it was about $12 million. It's a lot of what we suffered through in the first quarter last year went the other way. That's how I would talk about it. On just the other things on the business, I think that the first quarter of 2018 was a real depressed quarter for municipal issuance. We're starting the year stronger and nationwide issuance is up. If you exclude the Houston team that departed, we're up year-over-year as well. We're feeling good about the momentum that's being built there.
Really good about Brad's coming on board and getting his arms around the company and as well as all the employees working with him and getting to know him, and Hill Feinberg's continued leadership there as well.
Okay. Maybe just switching to expenses really quickly. You mentioned that this year was going to be a heavy investment year. Obviously, we started off the year pretty strong with good expense control in a number of business units. Can you just help us understand where some of those incremental investments are going to be and any sort of timing you can provide on when they might be within the year, just so we can kind of get that modeled correctly?
As far as Prime, I think we've articulated it on a fixed cost basis. We think that we've kind of illustrated the current run rate. As far as the other broader platform from growth and efficiency initiatives, it's early. We rolled out the details of the numbers of the last quarter of going from 89% to 83% efficiency ratio and generating $80 million of revenue and earnings and expense saves out of it. It's going to be more in the later half or more into 2021 where it'll be materialized. I don't have anything to tell you right now about just how to phase it in through this quarter. We've kind of felt like on those things, the level of investment's going to offset a lot of the savings. Go ahead, Will.
Yeah.
Okay.
What I'd add there, Michael, is we reported kind of on page nine of our slide deck, core systems improvements of about $2.5 million this quarter. In my comments noted that we do expect those to go higher. I would say as we start the deployment process, which we are across a few of those platforms this year, we're going to see those expenses, that $2.5 million number, trend higher really through the end of this year.
Okay. You'll continue to kind of call that out and point that out to us in terms of where that's going to occur and how much?
Yeah, we'll continue to be very transparent about what we're spending in that regard.
Okay, thanks.
Thanks.
Thank you.
The next question comes from Brady Gailey with KBW. Please go ahead.
Hey, good morning, guys.
Hey, Brady.
No buybacks this quarter. I mean, the stock trades at 1.1 times tangible. You're nearing 13% TCE. Just wanted to get updated thoughts on how you guys think about the buyback and why no buyback this quarter.
Well, to start with the latter part, why no buyback this quarter is, clearly we had some corporate actions that we felt that we were not legally in a position to be doing share repurchases. That's why we were inactive in the first quarter with the leadership changes. As we look towards the future and obviously the stock's come back a little bit, we have a $50 million share authorization, and we do plan to be active in the market in the open windows. We'll continue to do that as we have. As we did last year, we had about $60 million of share repurchases.
Okay. All right. I hear you, Will, on the core NIM guidance going up five basis points. If you look at the last couple of quarters, your core NIM has been running closer to in the mid 330 level. I think it was 338 this quarter. What gets the core margin down to the level that you're talking about relative to the recent past?
Yeah. I think I tried to highlight it in the comments, the view of ours is that betas are going to continue to increase on deposits, even with the Fed, even if assuming the Fed pauses here and kind of rate stabilize. We are continuing to see a competitive environment on the deposit side from a couple of different competitive sets. Further, as I mentioned, the loan sale for sale yield, which was higher this period, we do expect to be under some pressure given this direct linkage to where the tenure is. That while it takes about a quarter for that to pull its way through given funding levels and pace, we do expect those two things in particular to be under pressure. Loan yields on the core book, if you will, are also remaining under pressure in an intensely competitive commercial lending market.
As we look at it, loan yields both HFI and HFS under pressure and deposit yields also under pressure from a beta perspective. That's what would take us there. Again, as we think about the 325-328 range, that's how we see it right now, assuming market conditions stay reasonably consistent with current levels. Obviously, any changes we would evaluate.
Okay. All right. Finally, probably my most important question. With Alan being retired, I was wondering if you guys were going to continue with the Halloween video.
Absolutely. We've committed to that.
That's great. Hey, it's weird not to hear Alan's voice on the call. I wish him the best in retirement.
Well, thank you very much, and we agree. We appreciate that.
The next question comes from Christopher Gamaitoni with Compass Point. Please go ahead.
Good morning, guys.
Hey, Chris. How's it going?
Going well. I wanted to touch on the structured finance business. I completely get the benefit where you have the 10-year drop at the very end of the quarter on your held inventory. What are spreads looking like in April now that the 10-year is at least evened out and we're not having as much volatility?
I think spreads, and again, I don't want to give kind of quarterly guidance here around Q2, but what I'd say is, the market rates have reasonably stabilized at current levels. By virtue of that, our assumptions going forward and our outlook expectations going forward are that rates remain reasonably stable with the new reset levels after March of this year.
All right. Getting to the expense, if I remember correctly, did you give us a total number of kind of integration or core systems expense for the year?
We have not. Again, part of that is as we pace through and we work through the final implementation, it's difficult to put an absolute dollar level on it. What we're saying is this quarter we spent $2.5 million. Historically, it's been a little closer to $2 million, and we do expect that to travel higher through the year, quarter by quarter, as we work into our implementation and deployment windows.
All right. Another one following up on expenses is, if I remember correctly, in the fourth quarter, you attributed I think higher variable comp for mortgage for the year. It looks like you've done a great job at fixing the operations of the mortgage business. You need to be congratulated on that. It seems like you've really curtailed, call it the money loser loans. That would make me think that volume at least was down a lot in the first quarter and stable throughout the year. Variable comp should be down year-over-year if volume's down.
That's correct.
Okay. Then my last one is just on the loan growth guidance. Average loan growth guidance. If I take the first quarter rate and just assume that you don't grow period end balances at all for the rest of the year, I get to 6%. It would seem your number has upward bias with just seasonality in warehouse lines, and I know there's still a billion and one of unfunded construction commitments. Can you kind of bridge that gap of why your average loan growth won't be at least mildly higher than your guidance?
Well, I think with the first quarter, we're tracking pretty close to where we would have otherwise expected. By virtue of that, we did see, as I mentioned in my comments, an improvement or a growth in our mortgage warehouse lending business, which we know is seasonal, and will trail toward the end of the year. Also, again, contingent upon mortgage volumes in the market. That's kind of the first driver of maintaining the guidance where we are relative to the first quarter performance. Then we are seeing an intense pressure around structures and underwriting in our commercial lending businesses. By virtue of that, while we expect to continue to grow, it will be at a pace that we think is prudent given where the market currently is.
All right. You don't have an estimate of how much. I'll take that offline. Thanks so much for the answers. I appreciate it.
Thank you.
The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Hey, good morning.
Hey, Brett.
Wanted to first ask, just following up on mortgage, I guess I'm surprised. I guess there's been mixed results from some various banks this quarter on mortgage. You guys are a strong player in that market, and I kind of get the guidance around gain on sale not improving. I guess I expected you to talk about higher fee income level this year. I guess I'm just still struggling a little bit with the guidance around fee income and mortgage and just why you're not expecting higher volumes than you had last year.
As it relates to just both the fees. Origination volume first quarter was down 17% year-over-year, which is a little over a half a billion dollars. As you think about kind of the rest of the year and what we expect, we expect that to look like it's going to travel in line with 2018 levels of production, which is obviously an improvement versus what has been down year-over-year to this point. That's part A. In terms of our overall non-interest income guidance of 1%-3%, as Jeremy mentioned, we did see strong activity in our capital markets and structured finance businesses at Hilltop Securities. We do recognize that a portion of that was driven by the late rate movement in March, and without a significant additional rate movement, you wouldn't expect that to be recurring.
The next portion of that is the mortgage business, generally, both TBA as well as our mortgage origination business, generates a large portion of its fees in the second and third quarters. As a result of that, we're still cautiously optimistic that production volumes will be stronger through the second and third quarters of this year. Given the preponderance of that fee income generation in those quarters, we think it's prudent to maintain guidance at the current level.
Just to follow up on that, I think maybe a little bit more specific to mortgage and PrimeLending is the gain on sale margins, a little bit off from last year, four basis points. They've done a great job of increasing their mortgage loan origination fees on a per unit basis. That's up 19 basis points year-over-year.
That's right.
I guess the other question I wanted to ask is, you're going through an expense initiative, and I think you guys are doing a pretty good job at working that fairly early. Can you maybe give us some color on just how you might expect the efficiency ratio to trend over the next year? As we think about 2020, what's a realistic goal, whether it's in 4Q 2019 or 2020? Where do you think the efficiency ratio can get to?
You're talking about on a consolidated basis?
Correct.
Yeah. We just don't have that to give right now. I think what we've tried to articulate is where we're trying to go. As we get closer, we're just one quarter in, we'll be able to articulate the shape of that curve more.
Okay. Then maybe just one last one for me. Just on Houston. Just wanted to hear, I know you've been spending money on Houston and trying to grow Houston. Can you talk about Houston vis-a-vis the rest of the profile of the company and just how much of the growth, either in one Q or this year, how much of that's going to be Houston-focused?
As far as Okay.
The commercial bank, not other stuff.
Exactly. I think that, well, first of all, we're really pleased with the integration and the leadership there and Andy Lane and Jerry Brewer, Mark Troth, and they've really come together, and we've got one cohesive unit in Houston that's doing a great job. I think that they're building a business, and it's not a hockey stick at the same time. In the first quarter, particularly, I think that the loan growth there wasn't maybe as significant, but we do see some opportunities and some things that are actually getting through credit process right now and going to be funding that are really pointing towards the level of growth that we articulated and want there.
Okay. Great. Thanks for the color.
Thank you.
This concludes our question and answer session. The conference has also concluded. Thank you for attending today's presentation. You may now disconnect.