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Hilltop Holdings (HTH) Q2 Earnings Miss as Fee Income Falls

Hilltop Holdings Inc.’s HTH second-quarter 2023 earnings of 28 cents per share missed the Zacks Consensus Estimate of 44 cents by a considerable margin. The bottom line also decreased 37.8% from the prior-year quarter.

Results were adversely impacted by weakness in the mortgage business, which hurt the company’s non-interest income. A huge jump in provisions and an increase in deposit costs were the other major undermining factors. On the other hand, an increase in loans and deposit balance supported net interest income (NII) growth to some extent. This, along with lower expenses, acted as a tailwind.

Net income attributable to Hilltop Holdings was $18.1 million, down 45.5% year over year.

Revenues & Expenses Decline

Net revenues were $308.9 million, declining 12.1% year over year. The top line, however, beat the Zacks Consensus Estimate of $305.4 million.

Net interest income grew 5.5% year over year to $118.3 million. Our estimate was $119.6 million.

Net interest margin (NIM) (taxable-equivalent basis) was 3.03%, expanding 27 basis points (bps). We had expected NIM to be 3.21%, but a substantial increase in deposit costs led the company to post lower numbers.

Non-interest income was $190.7 million, plunging 20.3%. The decline mainly resulted from a drastic fall in net gains from the sale of loans and other mortgage production income. We had anticipated the metric to be $184.7 million. However, more-than-expected weakness in mortgage business led the company to report lower fee income in the reported quarter.

Non-interest expenses declined 10.6% to $267 million. The fall was due to a decrease in almost all expense components except other expenses. We projected total non-interest expense of $264.7 million.

As of Jun 30, 2023, net loans held for investment were $8.2 billion, up 1.8% from the end of the prior quarter. Total deposits were $11.1 billion, growing almost 1%. Our estimates for net loans held for investment and total deposits were $8.3 billion and $11.6 billion, respectively.

Credit Quality Deteriorates

In the reported quarter, the company recorded a provision for credit losses of $14.8 million, up significantly from $5.3 million in the prior-year quarter. As of Jun 30, 2023, non-performing assets as a percentage of total assets were 0.25%, up 2 bps.

Profitability Ratios Deteriorate, Capital Ratios Improve

Return on average assets at the end of the reported quarter was 0.47%, down from the prior-year quarter’s 0.80%. The return on average equity was 3.53%, declining from 5.82%.

Common equity tier 1 capital ratio was 17.63% as of Jun 30, 2023, up from 17.24% in the corresponding period of 2022. The total capital ratio was 20.44%, reflecting a rise from the year-ago period’s 19.90%.

Share Repurchase Update

In the quarter under review, HTH did not repurchase any shares.

Our Take

Hilltop Holdings’ restructuring efforts to diversify business as a profitable banking operation are commendable. Higher interest rates and a rise in loan demand are expected to support the company’s revenues, though steadily rising funding costs will likely weigh on it.

Given the company’s continued investments in franchise, expenses are anticipated to increase in the near term, hurting profits to an extent. Also, a worsening economic outlook and a challenging operating backdrop are likely to put pressure on HTH’s asset quality.

Hilltop Holdings Inc. Price, Consensus and EPS Surprise

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

Hilltop Holdings Inc. price-consensus-eps-surprise-chart | Hilltop Holdings Inc. Quote

Hilltop Holdings currently carries a Zacks Rank #4 (Sell).

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

Performance of Other Banks

Commerce Bancshares Inc.’s CBSH second-quarter 2023 earnings per share of $1.02 surpassed the Zacks Consensus Estimate of 93 cents. The bottom line increased 10.9% from the prior-year quarter.

CBSH’s results benefited from an increase in NII driven by a rise in loan balance and higher interest rates. Also, non-interest income grew during the quarter.

F.N.B. Corporation’s FNB second-quarter adjusted earnings per share of 39 cents beat the Zacks Consensus Estimate of 38 cents. The bottom line reflects a rise of 30% from the prior-year quarter.

FNB’s results were primarily aided by a rise in NII and solid loan demand. Higher interest rates supported the growth in margins. However, increased expenses and rising provisions were the undermining factors.

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