Margins compress Primelending's 3Q results

Lower gain on sale on production along with diminished loan origination volume led to a tough quarter for Hilltop Holding's mortgage business, Primelending.

Primelending lost $8.2 million in the third quarter, compared with a $14.5 million loss in the second quarter and a loss of $23.1 million for the same period in 2022.

"Primelending's results continued to be impacted by the housing market's lack of inventory, consumer affordability challenges and a stubbornly compressed gain-on-sale margin," said Jeremy Ford, president and CEO of Hilltop Holdings, in a press release.

The mortgage unit's gain on sale margins were lower, at 198 basis points, versus 201 basis points for the three months ended June 30 and 218 basis points one year prior.

In dollar terms, Primelending's gain on sale was $47.3 million, and it also reported $41.5 million of loan origination fees for the second quarter.

In the second quarter, the gain was $48.5 million with $41.4 million of fees generated on originations. For last year's third quarter, the gain was just under $58 million, with fees generated of just under $40 million.

At the same time, Primelending produced $2.24 billion during the third quarter, compared with $2.45 billion in the second quarter and $3.04 billion for the third quarter in 2022.

The gain on sale results differed from those at three large banks (Primelending is also a subsidiary of a bank, PlainsCapital Bank) that reported early in the cycle.

At Wells Fargo, the gain on sale was up by 10 basis points versus the prior quarter, while at JPMorgan Chase it was 56 basis points higher and at PNC, it was 20 basis points higher. All of these were better than what Keefe, Bruyette & Woods expected for the sector, which was for "roughly flat" gains on sale compared to prior periods, Bose George, an analyst with Keefe, Bruyette & Woods wrote in a report on Oct. 13.

His gain on sale outlook was based on expectations of lower production during the quarter.

The approximate 8% quarter-to-quarter decline in volume at Primelending compared with a 2% drop at JPMorgan Chase, 13% at PNC and 18% at Wells Fargo. At the time those banks reported, the Mortgage Bankers Association forecast volume being 4% lower.

Including its banking and securities businesses, Hilltop Holdings had net income of $37 million in the third quarter, compared with $18.1 million in the second quarter and $32.1 million during the third quarter of 2022.