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Texas-based Hilltop says oil slump still contained to energy sector

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Texas-based Hilltop says oil slump still contained to energy sector

's nationalmortgage business gathered lending momentum during the as borrowers tookadvantage of low interest rates to buy homes.

Afterposting first-quarter earnings, executives also said that, while weakened oilprices have bruised Texas' energy sector, problems have not notably migratedinto other areas of the state's economy.

However,Dallas-based Hilltop, which also has under its umbrella a broker/dealerbusiness and a property and casualty insurance operation, said strength inlending was countered by some weakness in its broker/dealer results as well ashigher insurance losses tied to severe March storms in Texas. Hilltop's insuranceloss and loss-adjustment expense ratio of about 55% was up from nearly 48% ayear earlier.

Hilltop on April 28 reported incomeapplicable to common stockholders of $27.6 million, or 28 cents per diluted share. That was down from $111.9million, or $1.11,a year earlier. The company noted that the sharp decline was due largely to thefact that Hilltop's bottom line in the first quarter of 2015 benefited from abargain purchase gain of $81.3 million linkedto its buyout ofbroker/dealer SWS Group Inc.

Hilltop'smortgage business grew overall loan originations from a year earlier, withdouble-digit growth in loans for home purchases. Despite a Federal Reserve movelate in 2015 to bump up short-term interest rates, rates on long-term loanssuch as mortgages continue to hover near historic lows. As the home-buyingseason heats up this spring and summer, Hilltop executives expect that volumein the mortgage business will continue to build.

Vice Chairman Alan White said during Hilltop'sfirst-quarter earnings call April 29 that the company's national mortgagebusiness has experienced strong demand in Texas and California, as well as inthe Midwest and on the East Coast. Demand is solid "pretty much across thecountry," he said.

Inthe company's commercial bank, overall loans grew at an annualized 11% pace inthe first quarter, with commercial strength in Dallas and elsewhere in Texas.The bank's energy portfolio, while a small piece of its total lending pie $233.5 million, or 4.5% of totalloans — grew more than 20% from ayear earlier, helping to push up overall growth.

Energy in Texas has been under pressure for morethan a year amid a protracted slump in oil prices. White said the bank iscarefully underwriting energy credits and is studying the oil-and-gas landscapefor signs of a contagion effect — that is, energy trouble spilling into othersectors, presenting credit quality problems in other business lines. To date,however, "We're really not seeing anything."

Askedon the call about the bank's appetite for acquisitions, including banks,President and CEO Jeremy Ford said M&A talks in Texas have been slow tomaterialize in 2016, given the energy backdrop. But he said that Hilltop isinterested in pursuing deals. "We continue to focus on that," hesaid.