PrimeLending and Waterstone buck mortgage originations pattern

A pair of bank holding companies with significant mortgage operations bucked second quarter industry trends by reporting increased volume from the first three months of the year.

But gain on sale at both fell by more than one percentage point on a year-over-year basis.

Second quarter originations at Wells Fargo, JPMorgan Chase, U.S. Bank and PNC were down an average of 11% on a quarter-to-quarter basis, worse than the 2% to 8% economists had forecast for the mortgage industry, a Keefe, Bruyette & Woods report noted.

At Waterstone Mortgage, second quarter net income dropped 83.5% from the prior year, fueled by a 27% decline in origination volume compounded by a 105 basis point reduction in gross gain on sales margin.

Mortgage banking net income at the Waterstone Financial subsidiary was $1.7 million for the most recent quarter, up from $1.1 million in the first quarter but well below the $10.4 million reported for the second quarter of 2021.

Gross margins slipped for the eight consecutive quarter, falling to 376 basis points from 400 bps in the first quarter, 481 bps one year prior and 545 bps two years ago.

Margins fell even as Waterstone had a big shift in the purchase/refinance mix of its originations. In the second quarter, Waterstone produced $778.8 million, with 90.4% coming from purchase.

But in the first quarter, it originated $708.5 million with 77.3% purchase while in the second quarter of 2021 it did $1.07 trillion of which 75.4% was purchase.

“The mortgage banking segment continues to focus on efficiencies to remain profitable, as origination volumes decreased in response to higher interest rates,” Waterstone Financial CEO Douglas Gordon said in a press release.

The segment had the biggest effect on net income at the parent company. Waterstone Financial ended the quarter with net income of $8 million, up from $5.3 million in the first quarter but down from $17.4 million one year prior.

Its community banking subsidiary WaterStone Bank on the other hand, recorded a much smaller year-over-year drop. It earned $6.3 million for the most recent period, compared with $4.3 million one quarter prior and $7.5 million the previous year.

Meanwhile PrimeLending, the mortgage origination business of Hilltop Holdings, had second quarter pretax income of $5.6 million, down from $6.5 million for the first quarter and $49 million one year prior.

PrimeLending’s immediate parent PlainsCapital Bank is its own reporting segment, while HilltopSecurities is a third.

Originations grew to $3.81 billion for the second quarter of which 87% were purchases. This was an increase from $3.7 billion in the first quarter, 65% being purchases. PrimeLending produced $5.9 billion in the second quarter of 2021, 68% coming from purchase activity.

Net gain on sale fell by 59 bps from the first quarter to 253 for the most recent period. A year ago, PrimeLending’s margin was 111 bps higher at 364 bps.

“PrimeLending and HilltopSecurities experienced a continuation of the challenging market faced in the first quarter with elevated and volatile interest rates paired with lower demand for new home purchases,” said Jeremy Ford, president and CEO, in a press release. “Importantly, both PrimeLending and HilltopSecurities were profitable during these challenging times as a result of strong expense discipline and experienced management teams.”

Hilltop Holdings’ second quarter net income to shareholders was $33.3 million, up from $22.3 million three months prior but down from $99.1 million on a year-over-year basis.

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