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Hilltop Holdings (HTH) Q3 Earnings, Revenues Miss Estimates

Hilltop Holdings Inc. HTH reported third-quarter 2017 earnings per share of 31 cents, which missed the Zacks Consensus Estimate of 43 cents. The figure was 41.5% below the year-ago earnings of 53 cents. The reported results include certain non-recurring items.

Lower provisions and improvement in loan and deposit balances supported the results. However, a fall in revenues and elevated expenses were the undermining factors.

Net income applicable to common stockholders came in at $30.2 million, down 41.8% year over year.

Revenues Dip, Costs Increase

Operating revenues for the quarter were $403.5 million, down 11.1% year over year. The figure also missed the Zacks Consensus Estimate of $433.5 million.  

Net interest income for the quarter grew 5.8% year over year to $105 million. Net interest margin was 3.50%, down 15 basis points (bps) from the prior-year quarter.

Non-interest income dropped 15.8% from the year-ago quarter to $298.5 million. The figure included certain non-recurring items. The decline was due to lower income from all the components.

Non-interest expenses increased 2.9% year over year to $353.8 million. This was largely attributable to higher loss and loss adjustment expenses, and occupancy and equipment expenses, partially offset by lower employees' compensation and benefits expenses, and other expenses.

Credit Quality: A Mixed Bag

Provision for loan losses was $1.3 million, down 68.4% year over year.

However, non-covered non-performing assets as a percentage of total assets were 0.34%, up 10 bps from the prior-year quarter. Also, non-covered non-performing loans were $40.1 million, up 59.1% year over year.

Strong Balance Sheet

As of Sep 30, 2017, Hilltop Holdings’ cash and due from banks was $354.6 million, down 12.6% sequentially. Further, total shareholders’ equity was $1.9 billion, marginally up year over year.

Net non-covered loans were $6.1 billion as of Sep 30, 2017, relatively stable sequentially. Also, total deposits grew 1.2% from the prior-quarter to $7.7 billion.

Profitability & Capital Ratios Deteriorate

Return on average assets as of Sep 30, 2017 was 0.90%, down from 1.69% in the prior-year quarter. Additionally, return on average equity was 6.32%, down from 11.41% in the year-ago quarter.

Common equity tier 1 capital ratio was 17.66%, down from 16.80% as of Sep 30, 2016. Also, total capital ratio was 18.71%, declining from 18.82% in the prior-year quarter.

Our Take

Elevated expense levels owing to continued investments in franchise remains a near-term concern. Moreover, overall expenses are expected to increase. However, the company has a solid organic growth strategy in place and its capital deployment plans remain impressive. Further, improving loan and deposit balances will lead to top-line growth.

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

Associated Banc-Corp ASB reported third-quarter 2017 earnings per share of 41 cents, outpacing the Zacks Consensus Estimate of 36 cents. The figure represents an increase of 21% from the prior-year quarter.

Shares of Commerce Bancshares, Inc. CBSH slipped more than 2.4% following the release of its third-quarter 2017 results. Earnings of 71 cents per share missed the Zacks Consensus Estimate of 75 cents. The figure, however, reflects a 9.2% rise from the year-ago quarter.

Shares of First Republic Bank FRC fell 7.1%, following third-quarter 2017 results. The company reported a negative earnings surprise of 1.7 %, reflecting elevated expenses. Earnings per share came in at $1.14, missing the Zacks Consensus Estimate of $1.16. However, the figure improved 14% from the year-ago tally.

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