Why Is Hilltop Holdings (HTH) Down 10.8% Since The Last Earnings Report?

A month has gone by since the last earnings report for Hilltop Holdings Inc. (NYSE:HTH) . Shares have lost about 10.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hilltop Holdings Misses Q1 Earnings & Revenue Estimates

Hilltop Holdings recorded a negative earnings surprise of 20.6% in the first quarter of 2017. The company’s earnings per share of $0.27 lagged the Zacks Consensus Estimate of $0.34 and declined 3.6% year over year.

Lower net interest income and non-interest income affected the results. Further, the balance sheet and profitability ratios remained weak. However, the company witnessed lower expenses during the quarter.

Net income applicable to common stockholders came in at $26.4 million, down 4.1% year over year.

Revenue Decline More than Offsets Lower Costs

The company’s operating revenues for the quarter were $363.5 million, down 2% year over year. The figure also missed the Zacks Consensus Estimate of $393 million.

Net interest income for the quarter declined 1.9% year over year to $92.1 million. Net interest margin was 3.52%, up 15 basis points (bps) from the prior-year quarter.

Non-interest income fell 2.1% year over year to $271.4 million mainly due to lower income from sale of loans and other mortgage production income, reduced investment and securities advisory fees and commission income along with low insurance premium earned.

However, non-interest expenses decreased 1.4% year over year to $320.5 million, mainly attributable to lower occupancy and equipment expenses, loss adjustment expenses, policy acquisition and other underwriting expenses and other expenses.

Mixed Credit Quality

Provision for loan losses was $1.7 million, down roughly 50% year over year. Non-covered non-performing assets as a percentage of total assets was 0.28% compared with 0.24% in the prior-year quarter.

Non-covered non-performing loans were $28.8 million, up 6.4% year over year.

Weak Balance Sheet

As of Mar 31, 2017, Hilltop’s cash and due from banks was $545.9 million, up 18.4% sequentially. Further, total shareholders’ equity was $1.9 billion, almost flat compared with the prior month.

Further, total assets were $12.3 billion as of Mar 31, 2017, down 3.1% sequentially. Also, total liabilities declined 3.8% from the prior-quarter to $10.4 billion.

Profitability Weakens, Capital Ratios Improve

Hilltop’s annualized return on average assets at the end of the reported quarter was 0.88%, down from 0.96% recorded in the prior-year quarter. Additionally, return on average equity was 5.73%, down from 6.32%.

Common equity tier 1 capital was 19.03%, significantly up year over year. Also, total capital ratio was significantly up to 20.12% year over year.

Outlook

Management continues to expect organic growth in 2017 to be nearly 8%–10%.

The company continues to expect core margin to be in the range of 3.02–3.08% in 2017, assuming no further rate hikes this year.

Further, the company expects purchase account accretion in 2017 to be approximately $10-$12 million per quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

VGM Scores

At this time, Hilltop Holdings's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.