Good morning. Welcome to the Hilltop Holdings Q1 2018 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Isabell Novakov. Please go ahead.
Good morning. Joining me on the call are Jeremy Ford, President and Co-CEO, Alan White, Vice Chairman and Co-CEO, and Will Furr, CFO. Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our business strategy, pending acquisitions, financial condition, and future plans are forward-looking statements. These statements are based on management's current expectations concerning future events that, by their nature, are subject to risks and uncertainties. Our actual results, capital, and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements contained at the outset of this presentation and those included in our most recent annual report and quarterly 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. A reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop-holdings.com. Now, I would like to hand the presentation over to Jeremy Ford.
Thank you, Isabell, and good morning. For the first quarter of 2018, net income was $24.4 million, or $0.25 per diluted share. While our mortgage and securities businesses were adversely impacted by market pressures this quarter, we are very pleased with the performance that our banking franchise delivered. Year-over-year, our core loan portfolio grew by 7%, and total deposits grew by 9%, which supported a 12% increase in net interest income for Hilltop. Higher short-term interest rates benefited our retail, clearing, and securities lending businesses in the quarter, generating a 13% increase in net revenues. Non-interest expense decreased $20.5 million, or 6%, versus Q4 2017, and $12.3 million, or 4%, versus Q1 2017, driven by lower losses in the insurance business and reduced compensation expense in the securities business from lower revenues. Delivering value to our shareholders remains a top priority.
During the first quarter, Hilltop returned $8.4 million to shareholders through dividends and share repurchases. We also announced the execution of a definitive agreement to acquire The Bank of River Oaks and are very excited about accelerating our growth efforts in the robust Houston market through that franchise. Additionally, Hilltop's board of directors declared a quarterly cash dividend of $0.07 per common share payable on May 31st, 2018. This quarter highlighted our emphasis on risk management as Non-Performing Assets trended down for the third consecutive quarter to $42.2 million and the bank successfully recovered $1.9 million from a previously charged-off commercial loan. As well, the insurance business recorded a loss in L&E ratio of 45.3% for the first quarter, down from 60% during Q1 2017. Moving to slide four.
Hilltop benefited from the strength of our cornerstone entity, PlainsCapital Bank, which delivered a 22% increase in pre-tax income to $39 million, resulting from a favorable net interest margin of 4.15% and healthy asset quality. Although mortgage origination volumes increased by 5% from the prior year to $3 billion, tightening secondary market spreads led to a pre-tax loss of $3 million for PrimeLending. Hilltop Securities produced a decline in pre-tax income to $4 million, largely driven by lower volumes and spreads in structured finance, volatility in the capital markets fixed income portfolio, and a decrease in public finance offerings as many issuers accelerated their planned debt raises into Q4 2017, which was prior to the enactment of the Tax Act. Finally, National Lloyds experienced low storm losses, which is in line with seasonal expectations and drove its $5 million of pre-tax income.
Notably, the second quarter typically experiences the highest frequency of storms. I will now turn the presentation over to Will to walk through the financials.
Thank you, Jeremy. I'll start on page five. Hilltop's net income for the first quarter equated to $24.4 million, a decrease from the first quarter of 2017 of $2 million. As a result of the enactment of the Tax Act in Q4 2017, the GAAP effective tax rate was 23.3% for the first quarter of 2018 versus 36.4% in the same period prior year. We expect that the full-year GAAP effective tax rate will be between 23% and 25%, with variability driven by the impact of state taxes throughout the year. For the first quarter of 2018, purchase accounting positively impacted pre-tax income by $3.9 million. The positive net impact of these items has declined by approximately $1 million from the prior year and $2.5 million from the prior quarter.
This decline from the prior year is as expected, and the results are at the low end of our estimated range of $4 million-$6 million of pre-tax contribution per quarter for 2018. Hilltop's 91% efficiency ratio for the period was primarily impacted by a decrease in non-interest income within our mortgage segment, offset by modest improvements in non-interest expense. As Jeremy mentioned, non-interest expenses improved year-over-year by $12 million, driven by lower discretionary incentive compensation and lower insurance-related losses. Hilltop's capital position remains strong, with a period and common equity Tier 1 ratio of 18.6% and a Tier 1 leverage ratio of 13.26%. Of note, during the first quarter, we repurchased approximately 68,000 shares. We do expect to resume a higher level of repurchase activity during the second quarter, notwithstanding any significant market shifts. Moving to page six.
Net interest margin equated to 3.52% in the first quarter of 2018. The impact of purchase accounting accretion included in the net interest margin equates to 36 basis points for the quarter. The pre-purchase accounting taxable-equivalent net interest margin equated to 3.17% for the quarter, an increase of 17 basis points from the first quarter of 2017. The resulting increase in pre-purchase accounting net interest margin is driven by higher asset yields on both loans and securities, coupled with the ongoing management of deposit costs as we move through this interest rate cycle. Related to deposit costs, from December of 2015, our total deposit beta is approximately 21%, versus our through-the-cycle model beta levels of 50%-60%. The market is getting more competitive as rates move higher, and we expect the deposit betas will increase towards our through-the-cycle levels over time.
We remain focused on growing core deposits and managing our overall funding costs aggressively as the yield curve has continued to flatten. Given the 25 basis point rate increase that occurred during March, we are revising our pre-purchase accounting taxable-equivalent net interest margin guidance to 3.2%, ±3 basis points. We will continue to revisit our assumptions based on the outcome of future Federal Reserve rate movements and the impacts on our portfolios. Over the past year, average earning assets have increased by approximately $1.1 billion, driven by non-covered HFI bank loan growth of $352 million and growth in Hilltop's securities portfolios of $595 million, principally related to growth in mortgage-backed securities at the bank and Hilltop Securities. I'm moving to page seven.
First quarter mortgage-related income and fees declined by $17 million versus the first quarter of 2017. While mortgage origination volumes increased by $135 million, or 5% compared to Q1 2017, revenues declined as a result of a 32 basis point decline in secondary spreads, driven by tighter market pricing and ongoing competitive pressures. We view the current economic backdrop and relatively strong purchase market as constructive for volumes in the short and intermediate terms. However, higher long-term rates coupled with aggressive price competition could result in ongoing pressure on secondary spreads into the second and third quarters. Securities-related fees decreased versus the prior year by $4 million, primarily driven by lower public finance offerings. With the enactment of the Tax Act in Q4 2017, some issuers did accelerate planned debt raises into the fourth quarter.
The decrease in other income of $12.9 million was primarily driven by lower production volumes and tighter market spreads in the structured finance business, coupled with rate-driven variability in the fixed income capital markets portfolio. Further, the adoption of the new financial accounting standard regarding financial instruments reduced other income by $1.4 million in the quarter. Moving to page eight. Non-interest expenses improved from the first quarter of 2017 by $12 million, or 4%, to $308 million. $6 million of the improvement came from lower loss and L&E expenses in the insurance business, as storm frequency and severity were seasonally low. Compensation expenses were lower by $4.3 million during the period related to lower production revenues, driving lower commissions and discretionary incentives. Of note, mortgage origination-related variable compensation expenses are generally aligned with production volumes.
Further, this quarter included $2.7 million in costs related to ongoing core system replacements and enhancements. Moving to page nine. Total loans, including margin loans, Hilltop Securities, and the covered loans housed within the bank, grew by approximately $365 million, or 6%, versus the first quarter of 2017. This performance was in line with our full year expectations, and we maintain a full-year outlook of 6%-8% total loan growth. The modest decline in loan balances of $68 million on a linked-quarter basis is consistent with the prior year results in the same period and is related to certain large real estate paydowns that occurred throughout the first quarter. Moving to page 10. Total deposits are approximately $8 billion and have increased by $630 million, or 9%, versus the first quarter of 2017, and were relatively stable versus the fourth quarter.
Further, non-interest-bearing deposits have increased by $154 million, or 6%, linked quarter, offset by a 4% decline in interest-bearing deposits. Non-interest-bearing deposits represent 32% of total deposits, which has improved over time, reflecting our continued focus on growing and expanding customer relationships across our banking franchise. Deposit costs have increased modestly with short-term interest rates, and we remain active in the market, testing rates and terms to ensure we remain competitive while being very intentional in not leading the market in terms of higher rates. I'll now turn it to Alan to provide more insights on the business's performance.
Thank you, Will, and good morning. The bank had a good, solid quarter. Our income before tax was up 22% to $39 million. Our ROA was 131. Efficiency ratio was 61%. Our net interest margin was 415, and our net interest margin before purchase accounting was 365. That's nine basis points up year-over-year. We're really pleased with that as we continue to be able to control our loan costs and our deposit costs, and we see that continuing to head in the right direction, continue to help our income. Our assets were $9.3 billion. We had loan growth year-over-year of about 8%. First quarter was flat.
We had a lot of large paydowns, but we still believe that throughout the year that we can get back to that 6%-8% that we've been talking about, subject to being able to find some additional credits and subject to paydowns. The growth still continues to be focused in the commercial real estate area. I would say that 80% of our new loans are commercial real estate. A lot of those are construction loans. Of course, you would expect that you make construction loans, it's going to fund up and it's going to pay off. That's the reason you do it. That's why you see these large payoffs. The C&I business is very competitive and very tough. We continue to fight our way through that, and the entire market is tough.
We continue to keep our discipline and our lending standards, and we're not going to give that up. Our deposit growth, excluding our broker dealer deposits, grew 9% year-over-year. We continue to focus on that and focus on relationships, as Will says. I think the most important thing here, as far as the bank's concerned and I am, is the credit quality. We have outstanding credit quality. Our NPAs continue to improve. We just don't see any material weakness in any particular area of our credit. When you look at the hurricane activity, oil activity, any of that, just not anything there that we're concerned about.
Our strong markets are Dallas, Fort Worth, Austin, Lubbock, and we're anxious to get The Bank of River Oaks on our books because we think that's going to be able to help us significantly in the Houston area and in our loan growth going forward. We're looking forward to that transaction happening. I think one thing, too, that goes along with the loan quality, if you'll look year-over-year at our net charge-offs, they are $3.8 million on a $6 billion portfolio. I guess I'm very proud of that and very proud of the people, what they've done. That's pretty remarkable on that size of portfolio. I hope that resonates with you. PrimeLending. We had a pretty tough quarter at PrimeLending.
When you compare it to last year, there was still some refi business going on, and that helped us in that first quarter last year where we had really no refi business this quarter. We ended up losing $2.7 million before tax. It's not far off from what we were anticipating or budgeting. Nevertheless, that's not where we'd like to be. Our origination volume, as Will said, was up 5%. Pretty interesting that the volumes are up, but the income isn't. Our purchase percentage is running about 80%. I will tell you today, it's running about 86%-88%, and that's significant, and I'll tell you why here in a minute. Sales volume is pretty close to where it was last year, and we're servicing about $64 million worth of loans.
When you look at the business itself, where we really got hurt is the gain on sale. Starting in October, it really got competitive as far as the marketplace on gain on sale. I think you contribute this to two things. One, people trying to stay in the business that were not in the purchase business and really started cutting margins to be able to make deals. Then we began to see the 10-year note rise and the interest rates rise. That had some effect on it, too. That has continued through the first quarter. That has affected us significantly. We had a 32 basis point drop in our gain on sale, which is a significant figure, and that's caused the reason we did have a loss. Now, as we go into the second quarter, we're still seeing that.
We're hoping as that purchase market gets stronger and gets close to 100%, you're going to see the people that were not in that business are going to fall out. We hope as that happens, you're going to see them fall out, and then we hope maybe the market will start to turn back to where there'll be a better gain on sale as we go forward. However, there's some obstacles there. The economy is going to have to do well, and it's going to have to be able to withstand the continued rise in the interest rates that the Fed produces. We're going to watch that very closely. First quarter Okay. We're all right with that second quarter, probably is going to be softer than we want.
Then we'll see what's going to happen in third and fourth quarters, as what I said with the purchase volume. The mortgage business is going to be a tough market this year, but we are poised and in the right position to be able to handle that, and we continue to focus on our purchase volume. Our actual market percentage actually grew about eight basis points, so we're pleased with that. We're getting a bigger share of the market, and we hope to be able to continue that. At the broker-dealer, it was a tough quarter. Part of it's related to the fact of the Tax Act, especially as far as it comes to public banking. A lot of the deals people did at the end of the year and didn't do in the first quarter.
Traditionally, the first quarter isn't as strong, and it gets stronger for the rest of the year. That was off 31%, and that's pretty much what the national average is. That hit our bottom line. Capital markets continues to struggle. One of the reasons is we don't have a lot of product right now. When you don't do a lot of public finance, you don't have a lot of municipal bonds and stuff that you can actually use for the capital market sector. We struggle in income there. Then the one that hurt us probably the most, that we've been very involved, has been the structured finance, and that deals back with the mortgage business. We've done a lot of business there. I think we'll see a stronger recovery in the second quarter on structured finance, and I believe that will come back.
None of these things we can't come back from, none of these things we can't make up ground for as we go through the year. Retail was profitable and better than last year. Clearing is a lot better than last year. Security lending is better than last year. Of course, with the rise in interest rates and our cash management business, that really helps us. We've got some good things going on. We got some things we've got to improve, and we got to get some help getting some more business, but I'm optimistic that we're going to be able to bounce back in the broker-dealer. In the insurance business, we had no storms. Anytime we don't have any storms, we do fairly well in the insurance business.
I think Jeremy pretty well reported on those things, and we'll just continue to hope that as we go through this second quarter, which is normally not our good quarter, that we will not see any significant storms that really drive the bottom line to a negative. I think the thing that concerns us the most is the fact that our premium income continues to decline because of the competitive nature in Texas, and that we've got to turn that line around and start driving it to a better return so that we'll improve our income. Again, we made $4.8 million before tax versus $1.8 last year, we did a lot better than last year, and we'll keep our fingers crossed as we go forward here into the second and third quarters in the insurance business. Those are my reports.
We got a couple of headwinds ahead of us, and we will certainly work on those, and I feel confident that broker-dealer will come back. We'll work hard on the mortgage side, and I look very optimistically towards the bank, and what's going to help drive us that is credit quality and I feel very happy with that and the discipline that we have. That's my report.
This concludes our prepared remarks. We will now take questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Young with SunTrust. Please go ahead.
Hey, good morning.
Good morning.
Morning.
I wanted to start with just the municipal issuance market and maybe kind of a little bit of an outlook there. Do you think that the pipeline's just pulled down and it's got to rebuild, or do you think this could be more of a secular shift with the lower tax environment that we're in now?
Well, in the quarter, we saw our issuance drop year-over-year significantly, even greater than national issuance. I think that also the first quarter is kind of a weaker quarter to come out of it. We think that, versus last year, the public finance business is not going to be as great, it's going to be off. That it should build through the year. I think if you look at from past year, where we're at today, I hope that it kind of comes in versus revenue last year, about 20% off.
Okay. Given that, do you think some of the other businesses can pick up the slack and we can still kind of hit the full-year guidance there? Or do you think we should be paring back our assumptions for the year at this point?
I think for the broker-dealer, we've got to pare it back. I think that you've had our institutional businesses in the structured finance, the public finance, and capital markets get off to a weak start to the year. I think if you look kind of over the year, I would probably update the view would be about
Net revenue of $360 million-$375 million and looking at a pre-tax margin in the ten-ish range, 10 to 12-ish % range for the year. I think that, kind of coming into next quarter, our hope. We had some things in the first quarter that were driven by some sudden rate shocks. I think that stuff will normalize and the rest will just kind of moderate a little bit higher. I don't think we'll rebound to kind of the levels we were in 2017 just yet.
Okay. In the structured finance business, is that, I guess what you saw this quarter, are you seeing more competition there, or is it just purely the volume in kind of the existing areas that you've been active is just lower?
Well, first, there was the rate shock that we had decrease the profitability in that business in the first quarter to a degree, and I think that that will moderate. That said, that's kind of speaking to the spreads compressing. The volume is off as well. I think one of that is just general, the overall mortgage market it's going to be tied to. Secondarily is competition. I think that, we've had some really strong periods with that. I think that we had kind of collective net revenue on that business of, Excuse me. Of about $7 million for the quarter. I think that that'll rebound significantly next quarter, but probably not to the $20 million that it did in the fourth quarter of 2017.
Okay, just one last one, kind of big picture. I heard the comments about maybe being a little more aggressive on the share buyback next quarter. Just following the River Oaks transaction announcement, have you seen any increase in conversations on the M&A side and just any outlook you could provide there?
Yeah, I think, first and foremost, what we're working hard on We're really excited about the Bank of River Oaks transaction and what that's going to do for us as a franchise. We are working to get that executed, signed, and get integrated, and grow. That said, We have seen additional conversations and additional interest in talking to us. We think that it's a strong economy in Texas, and there's not a lot of distressed deals there. I do think that there are people that find our cash compelling. So yeah. I don't think that We don't feel precluded from evaluating and pursuing M&A right now.
All right, thanks.
Thanks.
Our next question comes from Brady Gailey with KBW. Please go ahead.
Hey, good morning. It's Mike Belmes on for Brady.
Hey, Mike.
Hey. I guess just coming back to the Houston outlook and your thoughts there. There does seem to be a lot of interest. Maybe if you could provide an outlook again, on the growth plans there and perhaps maybe, are you guys interested in doing lender hires or team lift-outs to kind of build the scale out there?
Well, we're acquiring Bank of River Oaks, which is a real quality franchise. It's in the most desirable geography of Houston. That's where we are going to get the boost. With that, we're partnering with some seasoned banking executives that are going to really be able to work with the existing PlainsCapital team in growing that market. I mean, that's where we're at, and I think that we'd want to continue to build on the franchise. Alan, you can speak to the lender recruiting.
Well, the economy is picking up in Houston, and the opportunities are there, and I think we're going to find quite a few opportunities with this bank and with these guys because of their ability to be able to expand the relationships they have. Yes, we're going to look for additional lenders. We'd like to find additional lending teams. Obviously, everybody does that. We'll do all the things that we always do, but I think this is going to be a good opportunity for us. This is pretty well centrally located in a very good part of Houston. We hope to be able to take advantage of it. Now, I think we'll see those advantages come in the second half of this year. Once we get ahold of it, we ought to be able to build or grow the loan side pretty fast.
I'm pretty optimistic from that standpoint.
Thanks. That is helpful. Maybe to loan growth. I see you still maintaining that 6%-8% guidance, kind of do recognize that it can be lumpy, construction loans fund up and pay off. Was the pay down activity, ex construction, kind of elevated this quarter? Is that something maybe?
If you will recall, you may not know, in 2016, we thought we were going to get a bunch of pay downs the end of the year, we ended up loan growth was 13%. In 2017, the first quarter, we just got hammered because we got all those payoffs. What happened to us this year is we got a lot of payoffs in the first quarter, you get a $50 or $60 million construction loan payoff, or 2-3, $20 million and $30 million loans, it is pretty hard to come up through. We made $180 million worth of new loans. We had $180 million worth of payoffs that hit us in the first quarter, that is kind of hard to come up through right now. We have a good pipeline. We have approved a lot of pretty good-sized loans.
We just have to get them funded. I don't know, today is not like when I used to do it a long time ago. You just don't sign a note and book it. It takes a while to get these things to get on the books. It takes a while to get them closed, especially construction loans. They have to fund up. It is just a process. I feel good about it. What I really feel good about is the quality. You can say whatever you want to say about our loan growth, but our loan quality is damn good. If we don't have problems, and we are not having to throw a bunch of money into the reserve every quarter, that is pretty good. I am not going to give in to the pressure on to have loan growth just to have it.
I want to have good loan growth, and I want us to be disciplined, and we are, and it is paying off for us. $3.8 million worth of charge-offs in five quarters over on a $6 billion loan portfolio, I will put that up against anybody.
No, definitely makes sense. Credit continues to perform well. I guess one last thing kind of related to those two topics. What are you seeing in the C&I space that kind of makes you cautious and maybe wanting to focus more on CRE?
Well, we'd love to make C&I loans. The problem is, it's very competitive. Structure-wise, people were doing things on a structure basis we're not going to do. They're not, in my opinion, wise things. We don't give on that. We'll give on rate. We don't mind that. We don't see a weakness in C&I. We just see a competitiveness, and the problem is, we're not going to give on structure. We're not going to give on the terms like that. We will give on rates. We just made a $20 million on this week that we got, and we got it on our terms, and we got it based off a relationship. I don't see a weakness in C&I. I just see a difficult time in the competitiveness and the structure that some of these guys are willing to do, and we're not.
Got you. That's helpful. Thanks for taking my questions.
Our next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Hi. Good morning, everyone.
Hey, Brett.
Morning.
Wanted just to make sure I understood the commentary around mortgage banking. Alan, if I heard you correctly, you said you think you'd do a little bit better in 2Q, but then I also thought I heard you say you expect continued spread pressure on gain-on-sale spreads. Can you maybe reconcile that?
You know.
All right, go ahead.
Brett, traditionally, first quarter is not good. Second, third quarters are our stronger quarters, the fourth quarter is our off quarter. We didn't have a good first quarter, just like we traditionally feel. Maybe it's a little worse than what we thought. Volume was there, spreads were off, that's what hurt us. I don't think that spread deal is really going to improve much in the second quarter, that doesn't mean we're not going to do okay. We'll make money, we'll make decent money. We're not going to make the money that we thought we did if the volumes hold up. Then I think we get past the second quarter, we're just going to have to see where this is because the refi business is gone, it's going to move more and more towards the purchase business.
As I said, the more our volume moves towards 100%, it's going to be a plus for us because that's going to mean those guys that aren't in the purchase business are going to be out of it. They're going to be gone, therefore, the competition gets to be less and maybe helps us with our spreads. There's no doubt about it's going to be a tough year. I'm not saying it isn't. It's yet to be seen what is going to happen as we go forward. I think second quarter is going to be slow, it's going to be tough. I think volumes will be all right, margins will be weak, profitability won't be as great as it has been. Then we're going to have to call it from there because it's changing all the time.
I'll give you an example. Last week, the MBA purchase money loans increased 1% last week, in the MBA. Ours increased 2.1%. You see, we're getting our share of the purchase business. As long as we can keep doing that's going to force other people to probably have to get out of the business because they're not going to be able to survive because there's nothing else there but purchase. We got to worry about inventory, we got to worry about the economy. If the economy can grow at 3% or better the Fed doesn't stop with interest rate increases, that will be all right. If it comes and hit heads and the damn economy doesn't start going, we got to look at something else. We got other problems.
You would think, well, if your margins are down and everything else, you could cut a lot of costs, the problem is you can't cut costs because our volumes are up. You got to be able to close those loans and do those things. You could say, "Well, okay, we don't need that volume. We're not going to do that." If you don't allow your loan officers to make loans and be able to get commissions, they're going to leave, and then you lose your tools that make you what you are. You got to be competitive in this environment. We've been in this before. We just haven't seen it last this long. Of course, the difference between what we saw before is the fact that interest rates are rising, too.
We're not only facing people trying to struggle to stay in business, we're also facing rising interest rates, which I'm not real sure at this point the total effect that has on it. I hope I totally confused you because that wasn't my intention, but that's.
No, that was a great color. I appreciate it. You did mention costs. Last year you managed expenses pretty flat, actually a little down. I realize there's a lot of business lines that go into it, as you guys are thinking about this year, can you do that and maybe even cut them a little bit? What's your thoughts on the expense run rate?
Are you talking about PrimeLending?
No.
I thought you were more impressed with costs.
Yes. I think as we look at costs, obviously, we are working across all of the levers we have as we look at the businesses from a growth perspective and the results that they produce. We remain focused. We mentioned in the last call, that 2017 we were doing a lot of planning. This year, we're doing a lot of implementing, and that really drove the $2.7 million of core system costs and implementations this quarter. Those will be ongoing, but we are working diligently to streamline our middle and back office, and help drive costs down as we move forward.
Okay. Any idea of the magnitude, Will?
I think as we sit here, we're going to work through the second quarter to help provide a little more clarity of that over time.
Okay, fair enough. Then, maybe just last one from me, you guys had great DDA growth, core deposits. Can you talk about maybe what's driving that? I know you're deposit focused, but what's sort of driving the core deposits?
I think we had a number of clients just increase their balances. We had a couple things that went on there. One, some new client relationships. Two, some clients put some incremental dollars in a non-interest-bearing account. Again, it remains a focus. We view that as core deposits. We view that as core client relationship deposits. As we've been kind of talking for the last 12 months, we are unequivocally focused on growing the business and growing core client relationships. It's just a reflection of that over time.
Okay. Appreciate the color.
Thank you.
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, guys. Just wanted to go back to the broker-dealer. Jeremy, I appreciate the guidance on the pre-tax margin. What gives you confidence that you can actually be in that range, assuming we get a couple more rate hikes and muni volume industry-wide continues to decline? Is it more a function of cost, or is it market share gain, or do you actually think that that business can organically grow? Thanks.
You're speaking to the entire broker-dealer?
What pieces do you think you can grow? I mean, is it more a function of cost cuts or are there other areas of the business that you think can grow? Just some greater color on how you get to that 10%-12% margin. Thanks.
Well, what we've kind of been shooting for in the past, about $100 million in net revenue a quarter. This past quarter, it was $80 million. There is a certain amount of it that was related to interest rate shocks, and the impact of that on the TBA and the capital markets business. I think a little bit of it, some of it is due to the acceleration of public finance issuance in the fourth quarter. If you kind of look out over the next three quarters and those normalize, that's where I think that the net revenue won't get back to $100 million, but probably get back to about $90 million a quarter. I think that given the mix shift in the businesses, you're looking at a ten-ish% pre-tax margin. I guess that's where my confidence is.
The underpin is, what we haven't talked about is, these institutional businesses have struggled, which in a broker-dealer business, not uncommon to have some volatility. We've had some real solid performance from other businesses in that entity. The retail segment has grown, a lot of that's been aided by a rise in short-term interest rates. The stock lending business has grown through balances, also through higher short-term interest rates in our clearing business. Those are, in this environment, actually more predictable as far as the revenue and the margins they deliver.
Okay, that's helpful. Maybe back to loan growth, Alan. Previously, you guys talked about a pipeline, I think the commercial pipeline. I didn't see it this quarter, but it's been trending around $1.8 billion. Any change there that would give you confidence that you could meet the loan growth target? Thanks.
No, it's still running about there. Our construction pipeline is running about $750 million, and that will continue to fund up. I can see the loans in the pipeline right now. They've been approved. We just got to get them closed. I think we're going to have a stronger quarter, subject to not getting any big pay downs, but I can see some pretty good growth this second quarter. Our people think they can come back and get back up there. This lumpiness is tough. I have to explain to them, you make a $50 million commercial real estate construction loan, it finishes, it's going to pay off, and that's what's supposed to happen. They just got to get out and find another one to replace it, and we're doing a pretty good job of it.
Like I say, I can see a pretty good chunk of business there that's going to fund up this quarter. I hope it gets done. It's just a little bit harder to get those things closed than it used to be. I'm okay on the loan growth, and it's not do or die for me on the loan growth. What's do or die for me is the credit quality and us staying disciplined on our underwriting. I just don't want to get off in a ditch and wake up and have a problem, or wake up and the economy went south and got a lot of problems.
We don't want to see you in a ditch, Alan. Maybe just one more for me. You guys used a little bit of advice just back to the buyback. I think it expires in January. You still got about $148 million left. Jeremy, would you expect that you'd eat into a decent chunk of that or maybe use it all, or is it just?
Yeah. The authorization we have for the year is $50 million, not $100 million. We did have kind of a light share repurchase over the last two quarters. We're just doing open market repurchases, so we have to do it when there's open markets. To get to the point is, our goal is to be active in the share repurchase. We want to buy back at least what we issue in equity awards, and then some. Given this environment, it's certainly something we've spent a lot of time thinking about.
Great. Appreciate the color, guys.
This concludes our question and answer session, as well as today's conference. Thank you for attending today's presentation. You may now disconnect.
Thank you.