Hilltop Holdings (HTH) Q3 Earnings & Revenues Lag Estimates

Hilltop Holdings Inc. 's HTH third-quarter 2018 earnings per share of 38 cents lagged the Zacks Consensus Estimate of 44 cents. However, the figure compared favorably with the prior-year quarter's earnings of 31 cents per share.

Results were primarily hurt by a decrease in non-interest income. Moreover, capital ratios deteriorated during the reported quarter. However, higher net interest income and lower expenses provided some support. Further, an improvement in overall asset quality was a positive for the company.

Net income applicable to common stockholders for the quarter under review was $35.8 million, up from $30.2 million registered in the prior-year quarter.

Revenues & Costs Decrease

Net revenues for the quarter were $380.0 million, down 5.8% year over year. Further, the figure lagged the Zacks Consensus Estimate of $385.1 million.

Net interest income was $110.3 million, reflecting rise of 5.1% year over year. Net interest margin (taxable equivalent basis) was 3.49%, up 3 basis points (bps) from the prior-year quarter.

Non-interest income decreased 9.6% from the year-ago quarter to $269.7 million. The decline was due to a fall in all components except for mortgage loan origination fees.

Non-interest expenses decreased 5.1% year over year to $335.7 million. This was attributable to a decline in all cost components except for professional services costs.

Credit Quality Improves

During the quarter, the company reported recovery for loan losses of nearly $0.4 million against provision for loan losses of $1.3 million in the prior-year quarter.

Moreover, non-covered non-performing assets as a percentage of total assets were 0.29% at the end of the reported quarter, down 5 bps from the prior-year quarter. Further, non-covered non-performing loans were nearly $36.8 million as of Sep 30, 2018, down from $40.1 million as of Sep 30, 2017.

Balance Sheet

As of Sep 30, 2018, Hilltop Holdings' cash and due from banks was $405.7 million compared with $353.4 million in the prior-quarter end. Total shareholders' equity was nearly $2 billion, up 2.5% sequentially.

Total deposits were $8.3 billion, up 6.1% from the prior-quarter end figure. Net non-covered loans were $6.7 billion as of Sep 30, 2018, up from $6.3 billion recorded in the prior-quarter end.

Profitability Ratios Improve, Capital Ratios Deteriorate

Return on average assets at the end of the reported quarter was 1.07%, up from 0.90% in the prior-year quarter. Additionally, return on average equity was 7.41%, up from 6.32% in the year-ago quarter.

Common equity tier 1 capital ratio was 16.95% as of Sep 30, 2018, down from 17.66% as of Sep 30, 2017. Moreover, total capital ratio was 17.87%, reflecting a decline from 18.71% in the prior-year quarter.

Our Take

Pressure on margins (despite rise in interest rates) remains a major concern for the company. Furthermore, elevated expense levels due to continued investments in franchise and inorganic growth strategy are likely to hurt bottom line to some extent. While increasing loan demand and strong balance sheet position are likely to support financials, expectations of a decline in mortgage origination volumes might adversely affect the Mortgage Origination segment's performance.

Hilltop Holdings Inc. Price, Consensus and EPS Surprise

Hilltop Holdings Inc. Price, Consensus and EPS Surprise | Hilltop Holdings Inc. Quote

Hilltop Holdings currently has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other Banks

Hancock Whitney Corporation's HWC third-quarter 2018 adjusted earnings per share of $1.01 were in line with the Zacks Consensus Estimate. Results benefited from an improvement in net revenues and decline in provision for loan losses. Further, loan and deposit growth remained strong. However, an increase in expenses and lower net interest margin were the downsides.

Commerce Bancshares, Inc.'s CBSH third-quarter 2018 earnings per share of $1.03 have surpassed the Zacks Consensus Estimate of 97 cents. Results primarily benefited from improvement in net interest income as well as non-interest income. Moreover, lower provisions supported results to quite an extent. However, elevated expenses hurt results.

First Republic Bank's FRC third-quarter 2018 earnings per share were $1.19, missing the Zacks Consensus Estimate of $1.20. Revenues improved from the prior-year quarter, backed by considerable rise in loans and deposit balances, and wealth management assets. However, despite rising rates, net interest margin disappointed on high deposit costs. Higher expenses and non-performing assets remained downsides.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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