Good morning, and welcome to the Hilltop Holdings Q1 2018 Earnings Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, Please note this event is being recorded. I would now like to turn the conference over to Isabel Novikov. 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 dotcom. And now, I would like to hand the presentation over to Jeremy Ford.
Thank you, Isabel, and good morning. For the Q1 of 2018, net income was $24,400,000 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 $20,500,000 or 6% versus Q4 2017 and $12,300,000 or 4% versus Q1 2017, driven by lower loan 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 Q1, Hilltop returned $8,400,000 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 31, 2018.
This quarter highlighted our emphasis on risk management, as non performing assets consecutive quarter to $42,200,000 and the bank successfully recovered $1,900,000 from a previously charged off commercial loan. As well, the insurance business recorded a loss in LE ratio of 45.3% for the Q1, down from 60% during Q1 2017. Moving to Slide 4. Hilltop benefited from the strength of our cornerstone entity, Plains Capital Bank, which delivered a 22% increase in pre tax income to $39,000,000 resulting from a favorable net interest margin of 4 point 15% and healthy asset quality. Although mortgage origination volumes increased by 5% from the prior year to 3,000,000,000 tightening secondary market spreads led to a pre tax loss of $3,000,000 for prime lending.
Hilltop Securities produced a decline in pre tax income to $4,000,000 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 Lloyd's experienced low storm losses, which is in line with seasonal expectations and drove its $5,000,000 of pre tax income. Notably, the 2nd 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 5. Hilltop's net income for the Q1 equated to $24,400,000 a decrease from the Q1 of 2017 of $2,000,000 As a result of the enactment of the Tax Act in Q4 2017, the GAAP effective tax rate was 23.3% for the Q1 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 Q1 of 2018, purchase accounting positively impacted pretax income by $3,900,000 The positive impact net impact of these items has declined by approximately $1,000,000 from the prior year and $2,500,000 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 $4,000,000 to $6,000,000 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 $12,000,000 driven by lower discretionary incentive compensation and lower insurance related losses. Filtop's capital position remained strong with a period in common equity Tier 1 ratio of 18.6% and a Tier 1 leverage ratio of 13.26%. Of note, during the Q1, we repurchased approximately 68,000 shares.
We do expect to resume a higher level of repurchase activity during the 2nd quarter, notwithstanding any significant market shifts. Moving to Page 6, net interest margin equated to 3.52% in the Q1 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 Q1 of 2017. The resulting increase in prepurchase 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% to 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 cost aggressively as the yield curve has continued to flat. Given the 25 basis point rate increase that occurred during March, we are revising our pre purchase accounting, tax equivalent net interest margin guidance to 3.2 percent plus or minus 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 $1,100,000,000 driven by non covered HFI bank loan growth of 3 securities portfolios of $595,000,000 principally related to growth in mortgage backed securities at the bank and Hilltop Securities. I'm moving to Page 7. Total non interest income for the Q1 of 2018 equated to $235,000,000 1st quarter mortgage related income and fees declined by $17,000,000 versus the Q1 of 2017. While mortgage origination volumes increased by $135,000,000 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 2nd and third quarters. Securities related fees decreased versus the prior year by $4,000,000 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 Q4. The decrease in other income of $12,900,000 was primarily driven by lower production volumes and tighter markets for its 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 $1,400,000 in the quarter. Moving to Page 8, noninterest expenses improved from the Q1 of 2017 by $12,000,000 or 4 percent to $308,000,000 Some $6,000,000 of the improvement came from lower loss and LAE expenses in the insurance business as storm frequency and severity were seasonally low. Compensation expenses were lower by $4,300,000 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 $2,700,000 in costs related to ongoing core system replacements and enhancements.
Moving to Page 9. Total loans including margin loans Hilltop Securities and the covered loans housed within the bank grew by approximately $365,000,000 or 6% versus the Q1 of 20 17. This performance was in line with our full year expectations and we maintain a full year outlook of 6% to 8% total loan growth. The modest decline in loan balances of $68,000,000 on a linked quarter basis is consistent with the prior year results in the same period and is related to certain large real estate pay downs that occurred throughout the Q1. Moving to Page 10.
Total deposits are approximately $8,000,000,000 and have increased by $630,000,000 or 9% versus the Q1 of 'seventeen and were relatively stable versus the 4th quarter. Further, non interest bearing deposits have increased by $154,000,000 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' performance.
Thank you. Thank you, Will, and good morning. I'll start with the bank and the bank had a good solid quarter. Our income before tax was up 22% to 39,000,000. Our ROA was 131, Efficiency ratio was 61%.
Our net interest margin was 4.15 and our net interest margin before purchase accounting was 3.65%. That's 9 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 $9,300,000,000 We had loan growth year over year of about 8%. First quarter was flat.
We had a lot of large pay downs, but we still believe that throughout the year that we can get back to that 6% to 8% that we've been talking about, subject to being able to find some additional credits and subject to pay downs. 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 and a lot of those are construction loans and of course you would expect that you make construction loan, it's going to fund up, it's going to pay off and that's the reason you do it. So that's why you see these large payoffs. The C and I business is very competitive, very tough, but we continue to fight our way through that and the entire market is tough and we continue to keep our discipline in our lending standards and we're not going to be able to we're not going to give that 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. And then I think the most important thing here as far as the bank is 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, not anything there that we're concerned about. Our strong markets are Dallas, Fort Worth, Austin, Lubbock and we're anxious to get Bancro 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. So we're looking forward to that transaction happening. I think one thing too that goes along with the loan quality, if you look year over year at our net charge offs, they are $3,800,000 on a $6,000,000,000 portfolio. And I guess I'm very proud of that, very proud of the people, what they've done.
That's pretty remarkable on that size of portfolio. I don't I hope that resonates with you. Prime Lending, we had a pretty tough quarter at Prime. However, when you compare it to last year, there were still some refi business going on and that helped us in that Q1 last year where we had really no refi business this quarter. So we ended up losing $2,700,000 before tax.
It's not far off from what we were anticipating or budgeting, but nevertheless, it'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% to 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 $64,000,000 worth of loans. When you look at the business itself, where we really got hurt is the gain on sale. And starting in October, it really got competitive as far as the marketplace on gain on sale. And I think you contribute this to 2 things. 1, 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.
And then we began to see the 10 year note rise, the interest rates rise, so that has some effect on it too. That has continued through the Q1. 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 Q2, we're still seeing that, but 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 and 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 will be a better gain on sale as we go forward.
However, there are 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. So we're going to watch that very closely. 1st quarter, okay, we are out with that. 2nd quarter probably is going to be softer than we want and then we'll see what's going to happen in 3rd and 4th quarters as what I said with the purchase volume.
So, 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 axle market percentage actually grew and about 8 basis points. So we're pleased with that. So 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 is related to the fact that the Tax Act, especially as far as it comes from public banking, a lot of the deals people did at the end of the year and didn't do in the Q1, but traditionally the first quarter is strong and it gets stronger for the rest of the year, but that was off 31% and that's pretty much what the national average is and 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. So we struggled in income there.
And then the one that hurt us probably the most that we've been very involved has been the structure finance and that deals back with the mortgage business and we've done a lot of business there. I think we'll see a stronger recovery in the 2nd 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 HEX was profitable and better than last year. Clearing is a lot better than last year.
Security lending is better than last year. And of course, with the rise in interest rates in our cash management business, that really helps us. So we've got some good things going on. We've got some things we've got to improve and we've 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.
So anytime we don't have any storms, we do fairly well in the insurance business and I think Jeremy pretty well reported on those things and we'll just continue to hope that as we go through this 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 we've got to turn that line around and start driving it to a better return so that we'll improve our income. But again, we made $4,800,000 before tax versus $1,800,000 last year. So 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 of the insurance business. So 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. So that's my report.
This concludes our prepared remarks. We will now take
Our first question comes from Michael Young with SunTrust. Please go ahead.
Hey, good morning. Good 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 has 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, we saw in the quarter, we saw our issuance drop year over year significantly and even greater than national issuance. And I think that also the Q1 is kind of a weaker quarter to come out of it. I think we think that versus last year, the public finance business is not going to be as great, it's going to be off, but 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. And given that, I mean, 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 kind of be pairing back our assumptions for the year at this point?
I think for the broker dealer, we've got to pair it back. I mean, I think that you've had our institutional businesses in TV in the structured finance, the public finance and capital markets get off to a weak start to the year. And I think if you look kind of over the year, I would probably update the view of the about net revenue of $360,000,000 to $375,000,000 and looking at a pre tax margin in the 10% to 12% -ish range for the year. And I think that kind of coming into next quarter, our hope and we had some things in the Q1 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, but I don't think we'll rebound to kind of the levels we were in 2017 just yet.
Okay. And 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 and kind of the existing areas that you've been active is just lower?
Well, it's first, there was the rate shock that we had decreased the profitability in that business in the Q1 to a degree, and I think that that will moderate. That said, and so 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. And also then secondarily is competition.
And so, 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 like, So, of about $7,000,000 for the quarter, I think that, that will rebound significantly next quarter, but probably not to the $20,000,000 that it did in the Q4 of 'seventeen.
Okay. And 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. But just following the River Oaks transaction announcement, have you seen any increase in conversations on the M and A side? And just any outlook you could provide there?
Yes, I think, 1st and foremost, what we're working hard on is that we're really excited about the Bank of River Oaks transaction and what that's going to do for us as a franchise. And we are working to get that executed, signed and get integrated and grow. So that said, I think as far as 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. But I do think that there are people that find our cash compelling.
So that's what we've so, yes. And I don't think that the we don't feel precluded from evaluating and pursuing M and 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 Belmas on for Brady.
Hey, Mike.
I guess just touching 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 with us 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 most desirable geography of Houston. So that's where we are going to get the boost. And with that, we're partnering with some season begging executives that are going to really be able to work with the existing PlainsCapital team and grow in that market. So 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. And yes, we're going to look for additional lenders. We'd like to find additional lending teams. Obviously, everybody does that.
So we'll do all the things that we always do. I think this is going to be a good opportunity for us. And this is pretty well centrally located in a very good part of Houston and so we hope to be able to take advantage of it. And I think we'll see those advantages come in the second half of this year. Once we get a hold of it, we ought to be able to grow the loan side pretty fast.
So I'm pretty optimistic from that standpoint.
Thanks. That's helpful. And then maybe to loan growth, as you're still maintaining that 6% to 8% guidance and kind of do recognize that it can be lumpy, construction loans fund up and payoff, but was the pay down activity ex construction kind of elevated this quarter? And is that something maybe Yes.
If you recall and you may not know, but in 'sixteen, we thought we're going to get a bunch of paydowns at the end of the year and we ended up loan growth was 13%. And then in 'seventeen, the Q1, we just got hammered, because we got all those payoffs. And what happened to us this year is we got a lot of payoffs in the Q1 and you get a $50,000,000 or $60,000,000 construction loan payoff or $2,000,000 or $3,000,000 $20,000,000 $30,000,000 loan, it's pretty hard to come up through. We made $180,000,000 worth of new loans. I mean, we had $180,000,000 worth of payoffs that hit us in the Q1 and that's kind of hard to come up through right now, but we have a good pipeline.
We have approved a lot of pretty good sized loans. We just have to get them funded and I don't know, today, it's not like when I used to do it a long time ago, you just don't while to get 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. So it's just a process, but I feel good about it.
And what I really feel good about is the quality. I mean, you can say whatever you want to say about our loan growth, but our loan is damn good and if we don't have problems and we are not having so much of money into the reserve every quarter, that's pretty good. So I am not going to give in the pressure on to have loan growth just to have it. I want to have good loan growth. I want to be disciplined and we are and it's paying off for us.
So $3,800,000 worth of charge offs in 5 quarters over a $6,000,000,000 loan portfolio, I'll put that up against anybody.
No, definitely makes sense. Credit continues to perform well. And I guess one last thing kind of related to those two topics. Kind of what are you seeing in the C and I space that kind of makes you cautious and maybe wanting to focus more on CRE?
Well, we'd love to make C and I loans. The problem is, it's very competitive. Structural wise, people are doing things on a structure basis, we are not going to do. They are not, in my opinion, wise things. And so we don't give on that.
We will give on right. We don't mind that. We don't see a weakness in C and I. We just see a competitiveness and the problem is, we are not going to give on structure. We are not going to give on rates.
We just made a $20,000,000 on this week that we got and we got it on our terms and we got it based off of relationship. So I don't see a weakness in C and I, I just see a weakness, I mean, 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. Good 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? And then just as I guess You know,
Brett, traditionally, 1st quarter is not good. 2nd, 3rd quarters are our stronger quarters and the 4th quarter is our upside. Well, 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 and that's what hurt us. I don't think that spread deals really going to improve much in the second quarter, but that doesn't mean we're not going to do okay.
We'll make money and we'll make decent money, we are not going to make the money that we thought we did if the volumes hold up. And then I think we get past the Q2, we're just going to have to see where this is because the refi business is gone and it's going to move more and more towards the purchase business. And as I said, the more our volume moves towards 100% is 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 and they're going to be gone and therefore the competition gets to be less and maybe helps us with our spreads. But there's no doubt about it. It's going to be a tough year.
I'm not saying it isn't, but it's yet to be seen what is going to happen as we go forward. I think second quarter is going slow and it's going to be tough. I think volumes will be alright, but I think margins will be weak and profitability won't be as great as it has been. And 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 NBA purchase money loans increased 1% last week in the NBA. Ours increased 2.1%. So you see we are getting our share of the purchase business. As long as we can keep doing that, it's going to force other people to probably have get out of the business, because they are not going to be able to survive, because there is nothing else there but purchase. Now we got to worry about inventory and we got worry about the economy.
If the economy can grow at 3% or better and the Fed doesn't stop with interest rate increases, that would be all right. If it comes and hit heads and the damn economy guns are going, then we got to get a look at something else. We got other problems. And you would think, well, if your margins are down, everything else, you could cut a lot of costs, but the problem is you can't cut costs because our volumes are up. And so you got to be able to close those loans and do those things and you could say, well, okay, we don't need that volume, we're not going to do that.
But 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've got to be competitive in this environment and we've been in this before. We just haven't seen it last this long And of course, the difference between what we saw before is the fact that interest rates are rising too. So we're not only facing people trying to struggle to stay in business, we are also facing rising interest rates, which I am not real sure at this point the total effect that has on it. And I hope I totally confuse you because I'm not teasing, but that's
No, that was yes, no,
that was a great color. I appreciate it. And then you did mention costs. Last year, you managed expenses pretty flat, actually a little down. And I realize there's a lot of business lines that go into it.
But as you guys are thinking about this year, can you do that and maybe even cut them a little bit or what's your thoughts on the expense run rate?
So, are you on lending?
No, just the The
rest of the cost.
Yes. So I think as we look at cost, 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 $2,700,000 of core system costs and implementations this quarter.
Those will be ongoing going, but we are working diligently to streamline our Midland 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 Q2 to help provide a little more clarity of that over time.
Okay, fair enough. And then maybe just last one for me. You guys had great DDA growth core deposits. Can you talk about maybe what's driving that? And I know you're deposit focused but what's sort of driving the core deposits?
I think we had a couple of number of clients just increased their balances. So we had a couple of things that went on there. 1, some new client relationships. 2, some clients put some incremental dollars in the non interest bearing account. But again, it remains a focus.
We view that as core deposits. We view that as core client relationship deposits. And 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. So that's 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 pretax margin. But what gives you confidence that you can actually be in that range, assuming we got 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?
Yes. Maybe what pieces do you think you can grow? I mean, is it more of a function of cost cuts or is it are there other areas of the business that you think can grow? Just some greater color on how you get to 10% to 12% margin? Thanks.
Yes. Well, I mean, what we've kind of been shooting for in the past about $100,000,000 of net revenue a quarter. This past quarter, it was $80,000,000 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. And I think a little bit of it some of it is due to the acceleration of public finance issuance in the Q4. So, if you kind of look out over the next three quarters and those normalize, that's where I think that the net revenue will $1,000,000 but probably get back to about $90,000,000 a quarter.
And I think that given the mix shift in the businesses, you're looking at 10 ish percent pre tax margin. So I guess that's where my confidence is. And the underpin is, what we haven't talked about is, so these institutional businesses have struggled, which in the broker dealer business, not uncommon has volatility. But we've had some real solid performance from other businesses in that entity. The retail segment has grown and a lot of that's been aided by a rise in short term interest rates.
The stock has grown and through balances, but also through higher short term interest rates in our clearing business. And so I think those and those are in this environment, actually more predictable as far as the revenue and the margins they deliver.
Okay, that's helpful. And then 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 $1,000,000,000 Any change there that would give you confidence that you could meet the loan growth target? Thanks.
No, it's still running about there. And our construction pipeline is running about 750 and that will continue to fund up. I can see the loans in the pipeline right now and they've been approved. We just got to get them closed. So I think we're going to have a stronger quarter.
It's just subject to not getting any big pay downs, but I can see some pretty good growth this 2nd quarter and our people think they can come back and get back up there. This lumpiness is tough and I have to explain to them, you make a $50,000,000 commercial real estate construction loan, it finishes, it's going to pay off. And that's what's supposed to happen. I just got to get out and find another one to replace it. And we're doing a pretty good job of it.
I'd 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. But 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 in the economy and 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 $148,000,000 left.
Jeremy, would you expect that you'd eat into a decent chunk of that or maybe use it all? Or is it just
Yes. The author yes, so the authorization we have for the year is 50,000,000 dollars not $100,000,000 And we did have kind of a light share repurchase over the last two quarters, and we're just doing open market repurchases. So we have to do it when there's open markets and so that. But 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 and given this environment, it's certainly something we are we've spent a lot of time thinking about.
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