Hilltop Holdings' (HTH) Stock Gains 3.2% On Q4 Earnings Beat

Hilltop Holdings Inc.’s (NYSE:HTH) shares have gained 3.2% following the release of its fourth-quarter and full-year 2017 results. Adjusted earnings per share of 44 cents for the quarter surpassed the Zacks Consensus Estimate of 42 cents.

Results benefited from lower expenses and higher net interest income. Also, improvement in loan and deposit balances supported the results to quite an extent. However, a decline in non-interest income and higher provisions were the undermining factors.

After taking into consideration certain non-recurring items (including the Tax Act related adjustment), net income applicable to common stockholders for the quarter came in at $13.4 million or 14 cents per share, compared with $35.3 million or 36 cents per share in the prior-year quarter.

For 2017, the company reported GAAP net income applicable to common stockholders of $132.5 million or $1.36 per share, down from $145.9 million or $1.48 per share registered in 2016.

Revenues & Costs Decrease

Operating revenues for the quarter were $399.1 million, decreasing 3.4% year over year. However, the figure surpassed the Zacks Consensus Estimate of $390 million.

For 2017, total revenues came in at $1.63 billion, decreasing 3.4% from 2016.

Net interest income for the quarter grew 4.4% year over year to $108.7 million. Net interest margin was 3.63%, down 17 basis points (bps) from the prior-year quarter.

Non-interest income dropped 6% from the year-ago quarter to $290.5 million. The decline was due to a fall in all components except securities commissions and fees, and investment and securities advisory fees and commissions.

Non-interest expenses decreased 7.6% year over year to $328.7 million. This was attributable to a decline in all cost components except net occupancy and equipment costs.

Credit Quality Worsens

Provision for loan losses was $5.5 million in the quarter, increasing 25.4% year over year. Also, non-covered non-performing assets as a percentage of total assets were 0.33% at the end of the quarter, up 9 bps from the prior-year quarter. Further, non-covered non-performing loans were $40.5 million as of Dec 31, 2017, up from $24.4 million as of Dec 31, 2016.

Strong Balance Sheet

As of Dec 31, 2017, Hilltop Holdings’ cash and due from banks was $487 million, increasing 37.3% sequentially. Further, total shareholders’ equity was $1.9 billion, marginally up sequentially.

Net non-covered loans were $6.2 billion as of Dec 31, 2017, up 2% sequentially. Also, total deposits grew 4.1% from the prior-quarter to nearly $8 billion.

Profitability & Capital Ratios Deteriorate

Return on average assets at the end of the quarter was 0.41%, down from 1.13% in the prior-year quarter. Additionally, return on average equity was 2.78%, decreasing from 7.56% in the year-ago quarter.

Common equity tier 1 capital ratio was 17.69% as of Dec 31, 2017, down from 18.30% as of Dec 31, 2016. Also, total capital ratio was 18.77%, declining from 19.34% in the prior-year quarter.

Dividend Hike

Concurrently, the Board of Directors of the company announced a quarterly cash dividend of 7 cents per share, a hike of 16.7% from the prior payout. The dividend will be paid on Feb 28 to shareholders on record as of Feb 15.

Our Take

The company has a solid organic growth strategy in place supported by improving loan and deposit balances. Also, given a solid balance sheet and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities. However, because of the company’s continued investments in franchise, overall expenses are anticipated to remain high.

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

Performance of Other Banks

Hancock Holding Company’s (NASDAQ:HBHC) fourth-quarter 2017 adjusted earnings per share came in at 86 cents, surpassing the Zacks Consensus Estimate of 83 cents. Results benefited from an improvement in both net interest income and non-interest income. Further, growth in loans and deposits remained strong. However, an increase in expenses and higher provisions were the key dampeners.

Commerce Bancshares, Inc.’s (NASDAQ:CBSH) fourth-quarter 2017 adjusted earnings per share of 74 cents surpassed the Zacks Consensus Estimate of 71 cents. Results primarily benefited from an improvement in both net interest income as well as non-interest income. Also, the company witnessed modest loan growth, and its capital and profitability ratios improved during the quarter. However, higher expenses and an increase in provision for loan losses acted as headwinds.

First Republic Bank (NYSE:FRC) delivered a negative earnings surprise of 4.3% in its fourth-quarter 2017 results, reflecting elevated expenses. Earnings per share came in at $1.10, missing the Zacks Consensus Estimate of $1.15. Despite rising rates, net interest margin disappointed on high deposit costs.

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