Hilltop Holdings (HTH) Rides on Rates, Loans Amid Cost Woes
Hilltop Holdings Inc. HTH is poised for top-line growth driven by the rise in loan demand and higher interest rates. The company's restructuring efforts to diversify business as a profitable banking operation are commendable. However, mounting expenses and higher mortgage rates are major near-term headwinds.
HTH’s net interest income (NII) witnessed a CAGR of 1.7% over the last six years (2017-2022). The rise was partly driven by acquisitions completed during that period. Robust loans and deposit balances and higher interest rates are expected to keep aiding NII in the quarters ahead. We project NII to increase 9.4% in 2023, 6.9% in 2024 and 8.4% in 2025.
Supported by the interest rate hikes, Hilltop Holdings’ net interest margin (NIM) is expected to improve in the quarters ahead. In 2022, NIM increased to 2.87% from 2.57% in 2021. We project NIM to be 3.49% in 2023, 3.88% in 2024 and 4.28% in 2025.
Hilltop Holdings has been increasing dividends on a regular basis since 2016, with the last one announced this January. Its board of directors approved a new stock repurchase program through January 2024, under which HTH may repurchase up to $75 million of its outstanding common stock. Given its earnings strength and strong capital and liquidity positions, the company is expected to keep boosting shareholder value through sustainable capital deployment activities.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 11.2% against a decline of 14.6% recorded by the industry.
Image Source: Zacks Investment Research
Hilltop Holdings’ non-interest expenses continue to mount. While expenses declined in 2022, overall costs are expected to increase in the near term, given the company’s steady investments in franchise, inflationary pressure, continued hiring and inorganic growth plans. Per our estimates, while expenses will decline 2.2% in 2023, the same will increase 6.8% and 5.1% in 2024 and 2025, respectively.
Also, the Mortgage Origination segment’s performance remains a matter of concern. While the mortgage volumes increased in 2019 and 2020 (driven by lower rates), the same decreased in 2021 by 1.3% and in 2022 by 44.2%. Higher mortgage rates will likely hurt origination volumes going forward, in turn, straining the segment’s top line. Per our estimates, segment total revenues will decline at a CAGR of 2.9% over the next three years.
Stocks to Consider
A couple of better-ranked stocks from the banking space are United Bancorporation of Alabama, Inc. UBAB and Republic Bancorp RBCAA.
The Zacks Consensus Estimate for UBAB's 2023 earnings has been unchanged in the past 30 days. UBAB's shares have surged 34.2% over the past six months. Currently, UBAB sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
RBCAA currently carries a Zacks Rank #2 (Buy). Its Zacks Consensus Estimate for 2023 has been revised almost 1% upward in the past 30 days. Over the past six months, RBCAA’s shares have moved up 5.1%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Hilltop Holdings Inc. (HTH) : Free Stock Analysis Report
Republic Bancorp, Inc. (RBCAA) : Free Stock Analysis Report
United Bancorporation of Alabama, Inc. (UBAB) : Free Stock Analysis Report
