Hilltop Holdings (HTH) Stock Down Despite Q1 Earnings Beat
Hilltop Holdings Inc.’s HTH first-quarter 2020 earnings of 51 cents per share beat the Zacks Consensus Estimate of 35 cents. Also, the bottom line compared favorably with the prior-year quarter’s earnings of 36 cents.
The results reflected an improvement in revenues and a strong balance sheet position. However, higher operating expenses and a drastic rise in credit costs were major headwinds. These were enough to hurt investor sentiments. The company’s shares declined 7.8%, after the announcement of results last week.
Net income applicable to common stockholders was $49.6 million, up 28% from the prior-year quarter.
Revenues Improve, Costs Rise
Net revenues were $382 million, increasing 17.8% year over year.
Net interest income was $110.3 million, up 1.9% from the prior-year quarter. Net interest margin (taxable equivalent basis) was 3.42%, down 28 basis points (bps) from the prior-year quarter.
Non-interest income jumped 25.8% from the year-ago quarter to $271.7 million. This rise was largely driven by a rise in all fee income components, except other income.
Non-interest expenses increased 1.1% from the year-ago quarter to $281.9 million. The increase was mainly due to rise in employees' compensation and benefits costs.
Credit Quality Worsens
Provision for loan losses was $34.5 million, up substantially from $1 million in the prior year quarter. The company built a significant reserve amid coronavirus-related economic uncertainty.
Non-performing assets as a percentage of total assets were 0.66%, up 26 bps. Also, non-performing loans were $87.4 million as of Mar 31, 2020, up significantly from $30.9 million recorded in the comparable period of 2019.
Strong Balance Sheet
As of Mar 31, 2020, Hilltop Holdings’ cash and due from banks was $524.4 million, up 20.9% from the prior quarter. Total shareholders’ equity was $2.2 billion, up 1.6% sequentially.
As of Mar 31, 2020, net loans held for investment decreased 1.1% sequentially to $7.2 billion. However, total deposits were $9.9 billion, up 10.1% from the prior quarter.
Profitability Improve, Capital Ratio Deteriorates
Return on average assets at the end of the reported quarter was 1.47%, up from 1.21% in the prior-year quarter. Also, return on average equity was 9.38%, up from 8.04% in the year-earlier quarter.
Common equity tier 1 capital ratio was 15.96% as of Mar 31, 2020, down from 16.75% in the corresponding period of 2019. Moreover, total capital ratio was 17.00%, reflecting a fall from 17.64% in the prior-year quarter.
Share Repurchase Update
During the first quarter, Hilltop Holdings repurchased 0.7 million shares at an average price of $21.32 per share.
In light of the uncertain outlook for 2020 due to the coronavirus pandemic and its aim of maintaining a strong capital and liquidity position during this period, the company has suspended the share buyback plan.
Our Take
Hilltop Holdings’ top-line growth is expected to remain decent, driven by modest loan demand. While higher costs, low interest rates and coronavirus-related slowdown are major near-term concerns, its strong balance sheet is expected to keep supporting financials.
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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Prosperity Bancshares Inc.’s PB first-quarter 2020 earnings per share of $1.39 surpassed the Zacks Consensus Estimate of $1.20. Also, the bottom line increased 17.8% year over year.
Commerce Bancshares, Inc.’s CBSH first-quarter 2020 earnings per share of 44 cents lagged the Zacks Consensus Estimate of 50 cents. Also, the bottom line represents a decline of 45.7% from the prior-year quarter.
Washington Federal’s WAFD second-quarter fiscal 2020 (ended Mar 31) earnings were 49 cents per share, missing the Zacks Consensus Estimate of 55 cents. The figure also declined 22.2% year over year.
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