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Why Is Hilltop Holdings (HTH) Up 2.9% Since Last Earnings Report?
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A month has gone by since the last earnings report for Hilltop Holdings (HTH - Free Report) . Shares have added about 2.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hilltop Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Hilltop Holdings' Q4 Earnings Lag Estimates, Costs Down
Hilltop Holdings’ fourth-quarter 2018 earnings per share of 30 cents missed the Zacks Consensus Estimate of 43 cents. However, the figure compares favorably with the prior-year quarter’s earnings of 14 cents per share (including the impact of Tax Act).
Results were adversely affected by a decrease in non-interest income and higher provision for loan losses. In addition, capital ratios deteriorated during the quarter. However, higher net interest income and lower expenses provided some support.
Results in the reported quarter included expenses related to The Rivers of Oak acquisition and charges related to efficiency initiatives. Net income applicable to common stockholders for the quarter under review was $28.1 million, up significantly from $13.4 million in the prior-year quarter.
Earnings per share for 2018 came in at $1.28, missing the Zacks Consensus Estimate of $1.44. The earnings figure also compares unfavorably with the prior-year tally of $1.36 (including the impact of Tax Act). Net income attributable to Hilltop Holdings for 2018 was $121.4 million, down 8.4% year over year.
Revenues Down, Costs Decline
Net revenues for the quarter came in at $356.2 million, declining 10.8% year over year. The reported figure also lagged the Zacks Consensus Estimate of $367.4 million.
Net revenues for 2018 were $1.46 billion, down 10.3% year over year. The figure came in line with the Zacks Consensus Estimate.
Net interest income for the fourth quarter was $117.7 million, reflecting rise of 8.3% year over year. Net interest margin (taxable equivalent basis) was 3.76%, up 17 basis points (bps) from the prior-year quarter.
Non-interest income dipped 17.9% from the year-ago quarter to $238.5 million. The decline was due to a fall in all components except for mortgage loan origination fees.
Non-interest expenses decreased 5.4% year over year to $310.8 million in the fourth quarter. This downside can be attributed to a decline in all cost components except for professional services costs, net occupancy and equipment cost and loss and loss adjustment expenses.
Credit Quality: A Mixed Bag
During the quarter, the company reported provision for loan losses of $6.9 million compared to $5.5 million reported in the prior-year quarter.
Moreover, non-performing assets as a percentage of total assets were 0.45% at the end of the quarter, down 20 bps from the year-ago quarter. Furthermore, non-performing loans were nearly $33.9 million as of Dec 31, 2018, down from $45.6 million as of Dec 31, 2017.
Strong Balance Sheet
As of Dec 31, 2018, Hilltop Holdings’ cash and due from banks was $644 million compared with $405.7 million at the prior-quarter end. Total shareholders’ equity was nearly $2 billion, marginally up from the end of the third quarter.
Total deposits were $8.5 billion as of Dec 31, 2018, up 3% from the prior-quarter end figure. Net loans held for investment declined marginally on a sequential basis to $6.9 billion.
Profitability Ratios Improve, Capital Ratios Deteriorate
Return on average assets at the end of the quarter was 0.86%, up from 0.41% witnessed in the prior-year quarter. Additionally, return on average equity was 5.76%, up from 2.78% in the year-earlier quarter.
Common equity tier 1 capital ratio was 16.58% as of Dec 31, 2018, down from 17.71% as of Dec 31, 2017. Moreover, total capital ratio was 17.47%, reflecting a decline from 18.78% reported in the prior-year quarter.
2019 Outlook
Management expects both average loans held for investments (HFI) and average deposit to grow in the range of 4-6%.
NII is projected to increase in the 1-3% range. Growth is expected to be partially offset by decline in PAA accretion income. Further, pre-PAA NIM (tax equivalent basis) to be 3.17-3.23%.
Non-interest income to grow at a rate of 1-3%, with improving capital markets and public finance market. Further, mortgage origination market decline is expected to stabilize at lower level.
Non-interest expenses are expected to decline 1% or increase 2%. The company continues to target positive operating leverage and improvement in efficiency.
Provisions expenses are anticipated to be 20-30 basis points of total HFI loans on the assumptions of loan growth and normalization of credit costs.
The company expects GAAP effective tax rate to be nearly 22-24%.
Owing to the changes in lease accounting that became effective Jan 1, 2019, management expects that risk-based capital ratios to be negatively impacted by 15-20 basis points in the first quarter of 2019, given the increase in risk weighted assets associated with leases.
Cost Saving Program
Hilltop Holdings has initiated an initiative to enhance platform and streamline operations with the goal of lowering operating costs and building a foundation for future organic and acquisitive growth. The company plans to reach its goal through a combination of expense reduction efforts, including strategic sourcing program and revenue focused initiatives, including the core system implementation and prime lending and the rollout of a digital payment network at PlainsCapital Bank.
Management targets to achieve positive operating leverage of 6% and pre-tax pre-provision income of $250 million in 2021. This equals to an annual earnings growth of 10-15%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17% due to these changes.
VGM Scores
Currently, Hilltop Holdings has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Hilltop Holdings has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Hilltop Holdings (HTH) Up 2.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Hilltop Holdings (HTH - Free Report) . Shares have added about 2.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hilltop Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Hilltop Holdings' Q4 Earnings Lag Estimates, Costs Down
Hilltop Holdings’ fourth-quarter 2018 earnings per share of 30 cents missed the Zacks Consensus Estimate of 43 cents. However, the figure compares favorably with the prior-year quarter’s earnings of 14 cents per share (including the impact of Tax Act).
Results were adversely affected by a decrease in non-interest income and higher provision for loan losses. In addition, capital ratios deteriorated during the quarter. However, higher net interest income and lower expenses provided some support.
Results in the reported quarter included expenses related to The Rivers of Oak acquisition and charges related to efficiency initiatives. Net income applicable to common stockholders for the quarter under review was $28.1 million, up significantly from $13.4 million in the prior-year quarter.
Earnings per share for 2018 came in at $1.28, missing the Zacks Consensus Estimate of $1.44. The earnings figure also compares unfavorably with the prior-year tally of $1.36 (including the impact of Tax Act). Net income attributable to Hilltop Holdings for 2018 was $121.4 million, down 8.4% year over year.
Revenues Down, Costs Decline
Net revenues for the quarter came in at $356.2 million, declining 10.8% year over year. The reported figure also lagged the Zacks Consensus Estimate of $367.4 million.
Net revenues for 2018 were $1.46 billion, down 10.3% year over year. The figure came in line with the Zacks Consensus Estimate.
Net interest income for the fourth quarter was $117.7 million, reflecting rise of 8.3% year over year. Net interest margin (taxable equivalent basis) was 3.76%, up 17 basis points (bps) from the prior-year quarter.
Non-interest income dipped 17.9% from the year-ago quarter to $238.5 million. The decline was due to a fall in all components except for mortgage loan origination fees.
Non-interest expenses decreased 5.4% year over year to $310.8 million in the fourth quarter. This downside can be attributed to a decline in all cost components except for professional services costs, net occupancy and equipment cost and loss and loss adjustment expenses.
Credit Quality: A Mixed Bag
During the quarter, the company reported provision for loan losses of $6.9 million compared to $5.5 million reported in the prior-year quarter.
Moreover, non-performing assets as a percentage of total assets were 0.45% at the end of the quarter, down 20 bps from the year-ago quarter. Furthermore, non-performing loans were nearly $33.9 million as of Dec 31, 2018, down from $45.6 million as of Dec 31, 2017.
Strong Balance Sheet
As of Dec 31, 2018, Hilltop Holdings’ cash and due from banks was $644 million compared with $405.7 million at the prior-quarter end. Total shareholders’ equity was nearly $2 billion, marginally up from the end of the third quarter.
Total deposits were $8.5 billion as of Dec 31, 2018, up 3% from the prior-quarter end figure. Net loans held for investment declined marginally on a sequential basis to $6.9 billion.
Profitability Ratios Improve, Capital Ratios Deteriorate
Return on average assets at the end of the quarter was 0.86%, up from 0.41% witnessed in the prior-year quarter. Additionally, return on average equity was 5.76%, up from 2.78% in the year-earlier quarter.
Common equity tier 1 capital ratio was 16.58% as of Dec 31, 2018, down from 17.71% as of Dec 31, 2017. Moreover, total capital ratio was 17.47%, reflecting a decline from 18.78% reported in the prior-year quarter.
2019 Outlook
Management expects both average loans held for investments (HFI) and average deposit to grow in the range of 4-6%.
NII is projected to increase in the 1-3% range. Growth is expected to be partially offset by decline in PAA accretion income. Further, pre-PAA NIM (tax equivalent basis) to be 3.17-3.23%.
Non-interest income to grow at a rate of 1-3%, with improving capital markets and public finance market. Further, mortgage origination market decline is expected to stabilize at lower level.
Non-interest expenses are expected to decline 1% or increase 2%. The company continues to target positive operating leverage and improvement in efficiency.
Provisions expenses are anticipated to be 20-30 basis points of total HFI loans on the assumptions of loan growth and normalization of credit costs.
The company expects GAAP effective tax rate to be nearly 22-24%.
Owing to the changes in lease accounting that became effective Jan 1, 2019, management expects that risk-based capital ratios to be negatively impacted by 15-20 basis points in the first quarter of 2019, given the increase in risk weighted assets associated with leases.
Cost Saving Program
Hilltop Holdings has initiated an initiative to enhance platform and streamline operations with the goal of lowering operating costs and building a foundation for future organic and acquisitive growth. The company plans to reach its goal through a combination of expense reduction efforts, including strategic sourcing program and revenue focused initiatives, including the core system implementation and prime lending and the rollout of a digital payment network at PlainsCapital Bank.
Management targets to achieve positive operating leverage of 6% and pre-tax pre-provision income of $250 million in 2021. This equals to an annual earnings growth of 10-15%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17% due to these changes.
VGM Scores
Currently, Hilltop Holdings has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Hilltop Holdings has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.