Category: HTH

Hilltop Holdings, Inc. (NYSE:HTH) operates in a highly volatile and cyclical market landscape. Interest rates remain elevated, affecting many banking operations. Despite this, HTH stays afloat with its prudent portfolio management. Its revenues and margins have expanded, leading to increased returns. Moreover, its stellar Balance Sheet shows excess capital and impressive liquidity levels. Indeed, its bank is the jewel of the crown. HTH must expand its banking segment outside Texas and improve its digital experience. That way, it can sustain or stimulate its growth potential.

Meanwhile, it remains an ideal stock due to its capital returns. Dividends and share repurchases are consistent and increasing. Likewise, the stock price stays in an uptrend. Investment returns are decent if we compare the stock price and company earnings. But we may have to wait for a better entry point as the current price shows limited upside potential.

Company Performance

It’s been almost a year since I last covered Hilltop Holdings, Inc. At that time, macroeconomic volatility started to peak as inflation skyrocketed. The impact was most evident in interest-sensitive assets and liabilities. Today, it faces similar challenges, given the persistent interest rate hikes. But we can see improvements in its operations as it capitalizes on its prudence.

As a financial holding company, it offers various financial products and services. It operates in three segments namely Banking, Broker Dealer, and Mortgage Origination. With that, the primary revenue streams are the yields or interest income on loans and investments. In 1Q 2023, interest income reached $191.43 million, a 60% year-over-year increase. This massive increase was impeccable, given the intense macroeconomic headwinds.

Its banking segment remained the primary driving force as it benefited from higher interest rates. Loans remained the primary revenue component, comprising almost two-thirds of interest income. Aside from interest rate hikes, the company enjoyed its excellent loan quality. Its non-performing loans decreased from 0.33% to 0.30%. It showed increased collectibility of loans, which was impressive due to the risk of defaults and delinquencies. Even better, the composition of its loans was suitable in the high-interest environment. The commercial side of loans comprised 59% of the total loans. They were CRE and C&I loans. In essence, the loans had higher returns and better hedges against risks due to collateral. CRE loans may still be risky, given the massive changes in the real estate market. It also offered construction and residential loans. Yet, there are opportunities it can seize to expand its operations. We will discuss them further in the following section.

Investment securities also drove yield growth after increasing by 70%. They also comprised 25% of the total interest income, making them a primary component. Even better, 98% of them were government-backed securities. They were in the form of treasuries and municipal bonds. In general, these securities are suitable for the current market landscape. They are more inflation-linked, so they have better yields during interest rate hikes. They also have better hedges against potential valuation losses. As a whole, HTH continued to flourish, primarily due to its prudent portfolio diversification.

Meanwhile, the other two segments remained hammered. These were most evident in the lower non-interest income. Its mortgage production income and mortgage loan origination fees decreased by 64% and 12%. The thing is, the banking segment is the star of the business. Meanwhile, the two segments continue to hamper its growth potential. We can see it in historical averages as the two segments remained lower than pre-pandemic levels. From this perspective, HTH may have to refocus its core operations. It may have to focus on what it does best and know how to improve its weak points. Digital adaptation is also one of the things it must improve. If we compare it to the industry, the bank appears to be moving relatively slower. The company must improve on this part since it is crucial in increasing operational efficiency. It can also attract more demand for its services as more transactions go online. But overall, the core operations remained solid as the banking segment. Expanding outside Texas can be wise if it wants to capture more customers.

Interest expenses also increased this quarter. At $69.72, it more than tripled in only a year. Deposits were the main contributors as part of its core business. Despite this, the increase in interest income remained higher. Also, non-interest expenses remained flat at $232 million. The amount was also the lowest in five quarters. As such, the company was most efficient in 1Q 2023. It led to an operating margin of 26% versus 5% in 1Q 2022.

This year, Hilltop may face similar challenges as recession woes persist. But with efficient and prudent asset management, the company can stabilize its operations. Interest rates may remain a double-edged sword. Yet, the decreasing inflation can be a source of hope. We will discuss them further in the following section.

How Hilltop Holdings, Inc. May Remain Solid This Year

Hilltop Holdings, Inc. started the year strong with its robust performance. Even so, it must not be too complacent as recession fears seep into millions of households and businesses. Interest rates continue to increase and are now above 5%. While higher interest rates mean higher loan yields, defaults and delinquencies may become a problem. It can lead to higher credit loss provisions and reduce operating income. The consolation is that most of its loans are for commercial purposes. Also, interest rate increments are already flat at 25 bps for two consecutive quarters.

Despite this, there are opportunities the company can seize as inflation continues to relax. It shows that the strategy of The Fed continues to pay off. And if the downward pattern continues, interest rate hikes may continue to slow down in the second half. At 4.9%, inflation is 46% lower than the 9.1% peak in 2022. Its impact may not materialize anytime soon, but it can increase confidence among consumers, borrowers, and investors. Although lower inflation does not mean lower prices, stability may be seen in the long run.

Another factor to consider is the real estate market since it offers CRE, construction, and multifamily residential loans. The mortgage origination segment may be directly affected. Yet, the softer demand may not lead to a real estate market crash due to many reasons. First, the price increase in the market was driven by the demand influx, not cost-push factors like labor and building materials. Second, property shortages remain high. At the start of the year, the US was short of 6.5 million. But as of this writing, shortages are higher at 7.3 million housing units. It can be attributed to the lower median home prices in 1Q 2023. As such, home sales and loan demand increased for three consecutive months. It is no surprise analysts still expect a 5.4% increase in home prices this year. While the increase rate is lower than in 2022, price and mortgage stability. may improve.

But what makes Hilltop a solid company is its impeccable financial positioning. Its high liquidity levels are demonstrated by its management of loans and deposits. Aside from prudent loan diversification, its conservative approach remained one of its core strengths. Organic loan growth and deposit inflows are evident, showing increased demand for customers and borrowers. More importantly, its loan-to-deposit ratio remains low at 73%. It is an impeccable aspect since it gives the company adequate reserves if there are defaults and delinquencies. The company can lend more to realize more loan yields and interest income.

Moreover, its liquid assets remain high. Its cash levels remain high at $1.8 billion, or 11% of the total assets. Although it decreased by 41% from 1Q 2023, it can still cover borrowings with current maturities. Its average cash burn every month is $102,000. So without borrowings, share issuance, and income, cash can cover 18 months of operations. The thing is, HTH generates increasing income. If we combine cash with investments, their amount will be equivalent to 37% of the total assets. They can also cover all liabilities, excluding deposits. This aspect shows that the company continues to balance growth and viability with sustainability.

Stock Price Assessment

The stock price of Hilltop Holdings, Inc. remains in an uptrend. There have been noticeable corrections in the past two years, but the rebound was substantial. At $30.99, the stock price is 5% higher than last year’s value. It also increased by 29% from its 2022 dip. The stock stays on my watchlist, and it was a wise decision to buy shares at its lows. But given the current stock price, we must evaluate it with extra caution. We can use the PB Ratio with the current BVPS and PB Ratio of 32.05 and 0.98x. But if we use the current BVPS and the average PB Ratio of 0.95x, the target price will be $30.46. The stock price remains fairly valued but the upside potential is limited. It is also quite higher than the intrinsic value of the company.

But what I like about this stock is its decent capital returns. It continues to raise dividends with yields of 2.01%, higher than the S&P 600 average of 1.72%. Aside from the recent dividends of $16 per share, it repurchased shares for $4.5 million or $31.15 per share. Investment returns are also decent if we compare cumulative company retained earnings to the average change in stock price. Since 2019, the company has generated an EPS of $13.25, while it distributed dividends at $1.75 per share. With that, the company had cumulative retained earnings of $11.48. Meanwhile, the stock price increased by $12.91, leading to a $0.51 difference. It also means that for every $1 retained earnings, the stock price increased by $1.12. As such, the stock price increase remained reasonable relative to company earnings. To assess the stock price better, we will use the DCF Model.

FCFF $81,300,000

Cash $1,800,000,000

Borrowings 2,080,000,000

Perpetual Growth Rate 4.4%

WACC 9.2%

Common Shares Outstanding 65,023,000

Stock Price $30.99

Derived Value $29.97

The derived value adheres to the supposition of a potential overvaluation. There may be a 4% downside in the next 12-18 months. While its fundamentals are impressive, investors must be careful about buying shares at the current stock price.

Bottomline

Hilltop Holdings, Inc. remains a solid company with a solid business model. The banking segment remains its cornerstone amidst market volatility. Even better, it ensures sustainability with its impressive financial positioning and excess capital. Its adequacy allows it to cover its capital returns through dividends and share repurchases. Despite this, the stock price shows limited upside potential. It is just about the same as the intrinsic value of the company. So, I will have to wait for a better entry point before buying more shares. But keeping holdings in this company may be a wise decision. The recommendation, for now, is that Hilltop Holdings, Inc. is a hold.

All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. But when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Hilltop Holdings in Focus

Based in Dallas, Hilltop Holdings (HTH Quick QuoteHTH – Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -0.67%. The insurance holding compnay is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 2.15% compared to the Banks – Southeast industry’s yield of 2.74% and the S&P 500’s yield of 1.75%.

Taking a look at the company’s dividend growth, its current annualized dividend of $0.64 is up 6.7% from last year. Over the last 5 years, Hilltop Holdings has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21.22%. Any future dividend growth will depend on both earnings growth and the company’s payout ratio; a payout ratio is the proportion of a firm’s annual earnings per share that it pays out as a dividend. Hilltop Holdings’s current payout ratio is 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, HTH expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $1.67 per share, which represents a year-over-year growth rate of 4.38%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It’s important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HTH presents a compelling investment opportunity; it’s not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

Hilltop Holdings (HTH Quick QuoteHTH – Free Report) came out with quarterly earnings of $0.40 per share, beating the Zacks Consensus Estimate of $0.23 per share. This compares to earnings of $0.28 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 73.91%. A quarter ago, it was expected that this insurance holding compnay would post earnings of $0.26 per share when it actually produced earnings of $0.39, delivering a surprise of 50%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Hilltop Holdings, which belongs to the Zacks Banks – Southeast industry, posted revenues of $284.2 million for the quarter ended March 2023, surpassing the Zacks Consensus Estimate by 2.40%. This compares to year-ago revenues of $316.42 million. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Hilltop Holdings shares have lost about 0.9% since the beginning of the year versus the S&P 500’s gain of 8.2%.

What’s Next for Hilltop Holdings?

While Hilltop Holdings has underperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Hilltop Holdings: mixed. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.36 on $306.67 million in revenues for the coming quarter and $1.49 on $1.22 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks – Southeast is currently in the bottom 6% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Another stock from the same industry, USCB Financial Holdings, Inc. (USCB Quick QuoteUSCB – Free Report) , has yet to report results for the quarter ended March 2023. The results are expected to be released on April 27.

This company is expected to post quarterly earnings of $0.26 per share in its upcoming report, which represents a year-over-year change of +8.3%. The consensus EPS estimate for the quarter has been revised 5.6% lower over the last 30 days to the current level.

USCB Financial Holdings, Inc.’s revenues are expected to be $18.09 million, up 10.9% from the year-ago quarter.

Hilltop Holdings Inc.’s (HTH Quick QuoteHTH – Free Report) second-quarter 2021 earnings from continuing operations of $1.21 per share easily surpassed the Zacks Consensus Estimate of $1.09. Also, the bottom line reflects a 12% rise from the prior-year quarter’s $1.08.

Results benefited from fall in expenses, partly offset by the decline in revenues. Nonetheless, deposits balance improved during the second quarter. Provision benefit and improving capital ratios also acted as tailwinds.

Net income applicable to common stockholders was $99.1 million, down 22.9% from the $128.5 million recorded in the prior-year quarter.

Revenues Fall, Expenses Decline

Net revenues came in at $447.8 million, declining 21.8% year over year. In addition, the figure missed the Zacks Consensus Estimate of $503.4 million.

Net interest income climbed 3.2% from the year-ago quarter to $107.9 million. Yet, net interest margin (taxable equivalent basis) was 2.63%, contracting 18 basis points (bps) from the prior-year quarter.

Non-interest income was $339.9 million, down 27.4% from the prior-year quarter. This fall resulted from the decrease in net gains from sale of loans and other mortgage production income, declining mortgage loan origination fees and other income.

Non-interest expenses shrunk 7.3% from the year-ago quarter to $343.4 million. This drop was due to a decrease in employees’ compensation and benefits costs, and decline in the net occupancy and equipment cost.

Credit Quality Improves

Provisions for credit losses were a benefit of $28.7 million against the provision of $66 million seen in the prior-year quarter. Further, as of Jun 30, 2021, non-performing assets as a percentage of total assets was 0.51%, down 6 bps from the prior-year quarter.

Balance Sheet Position

As of Jun 30, 2021, Hilltop Holdings’ cash and due from banks were $1.37 billion, down 12.3% from the previous quarter. Net loans held for investment were $7.53 billion, down 1.8% from the prior-quarter end.

However, total deposits were $11.73 billion, marginally upward from the prior quarter. Total shareholders’ equity was $2.5 billion, up 2% sequentially.

Profitability Decline, Capital Ratios Improve

Return on average assets at the end of the reported quarter was 2.29%, down from the prior-year quarter’s 3.30%. Also, return on average equity was 16.42%, down from the year-earlier quarter’s 23.32%.

Common equity tier 1 capital ratio was 20.22% as of Jun 30, 2021, up from 18.46% witnessed in the corresponding period of 2020. Additionally, total capital ratio was 23.48%, reflecting a rise from the year-ago period’s 21.82%.

Share Repurchase Update

During the second quarter, the company repurchased 1,240,843 shares at an average price of $35.85 per share.

Our Take

Hilltop Holdings’ restructuring efforts to diversify business as a profitable banking operation are commendable. However, pressure on margins, due to near-zero interest rates, is a concern as it might hurt the top line in the near term.

Hilltop Holdings currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Zions Bancorporation’s (ZION Quick QuoteZION – Free Report) second-quarter 2021 net earnings per share of $2.08 topped the Zacks Consensus Estimate of $1.25. The bottom line marked a significant improvement from the 34 cents earned in the year-ago quarter.

BOK Financial’s (BOKF Quick QuoteBOKF – Free Report) earnings per share of $2.40 handily surpassed the Zacks Consensus Estimate of $1.84. The bottom line compared favorably with the prior-year quarter’s 92 cents.

First Horizon National (FHN Quick QuoteFHN – Free Report) came out with quarterly earnings of $0.58 per share, beating the Zacks Consensus Estimate of $0.43. The figure also compared favorably with the year-earlier quarter’s earnings of $0.20 per share.

Hilltop Holdings (HTH Quick QuoteHTH – Free Report) came out with quarterly earnings of $1.21 per share, beating the Zacks Consensus Estimate of $1.09 per share. This compares to earnings of $1.08 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 11.01%. A quarter ago, it was expected that this insurance holding compnay would post earnings of $1.09 per share when it actually produced earnings of $1.46, delivering a surprise of 33.94%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Hilltop Holdings, which belongs to the Zacks Banks – Southeast industry, posted revenues of $447.82 million for the quarter ended June 2021, missing the Zacks Consensus Estimate by 11.04%. This compares to year-ago revenues of $572.68 million. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Hilltop Holdings shares have added about 21.9% since the beginning of the year versus the S&P 500’s gain of 16%.

What’s Next for Hilltop Holdings?

While Hilltop Holdings has outperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Hilltop Holdings was favorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.76 on $441.45 million in revenues for the coming quarter and $3.71 on $1.87 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks – Southeast is currently in the top 22% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Hilltop Holdings (HTH Quick QuoteHTH – Free Report) came out with quarterly earnings of $1.46 per share, beating the Zacks Consensus Estimate of $1.09 per share. This compares to earnings of $0.51 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 33.94%. A quarter ago, it was expected that this insurance holding compnay would post earnings of $1.28 per share when it actually produced earnings of $1.30, delivering a surprise of 1.56%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Hilltop Holdings, which belongs to the Zacks Banks – Southeast industry, posted revenues of $523.27 million for the quarter ended March 2021, surpassing the Zacks Consensus Estimate by 10.15%. This compares to year-ago revenues of $382.05 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Hilltop Holdings shares have added about 18.4% since the beginning of the year versus the S&P 500’s gain of 10.1%.

What’s Next for Hilltop Holdings?

While Hilltop Holdings has outperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Hilltop Holdings was favorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.98 on $469.13 million in revenues for the coming quarter and $3.10 on $1.76 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks – Southeast is currently in the top 6% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Hilltop Holdings (HTH Quick QuoteHTH – Free Report) came out with quarterly earnings of $1.30 per share, beating the Zacks Consensus Estimate of $1.28 per share. This compares to earnings of $0.54 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 1.56%. A quarter ago, it was expected that this insurance holding compnay would post earnings of $0.89 per share when it actually produced earnings of $1.69, delivering a surprise of 89.89%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Hilltop Holdings, which belongs to the Zacks Banks – Southeast industry, posted revenues of $555.30 million for the quarter ended December 2020, surpassing the Zacks Consensus Estimate by 5.88%. This compares to year-ago revenues of $410.56 million. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Hilltop Holdings shares have added about 17.8% since the beginning of the year versus the S&P 500’s gain of 2.5%.

What’s Next for Hilltop Holdings?

While Hilltop Holdings has outperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Hilltop Holdings was favorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #1 (Strong Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.93 on $431.90 million in revenues for the coming quarter and $2.59 on $1.67 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks – Southeast is currently in the top 6% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

It has been about a month since the last earnings report for Hilltop Holdings (HTH Quick QuoteHTH – Free Report) . Shares have added about 7.2% in that time frame, outperforming 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 Q3 Earnings & Revenues Beat Estimates

Hilltop Holdings’ third-quarter 2020 earnings from continuing operations of $1.69 per share comfortably beat the Zacks Consensus Estimate of 89 cents. Also, the bottom line compares favorably with the prior-year quarter’s earnings of 81 cents.

Results reflect an improvement in revenues aided by growth in non-interest income and a healthy balance-sheet position. Further, provision benefit was a tailwind. However, fall in net interest income and higher expenses were major headwinds.

Net income applicable to common stockholders was $153.3 million, up 93.1% from the prior-year quarter.

Revenues Improve, Costs Rise

Net revenues came in at $604.6 million, increasing 44.3% year over year. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $469.6 million.

Net interest income was $101.9 million, down 9.5% from the prior-year quarter. Net interest margin (taxable equivalent basis) came in at 2.57%, contracting 89 basis points (bps) from the prior-year quarter.

Non-interest income surged 64% from the year-ago quarter to $502.7 million. This was largely driven by a rise in all fee income components, except securities commissions and fees.

Non-interest expenses flared up 24.3% from the year-ago quarter to $399.3 million. This upswing mainly resulted from rise in employees’ compensation and benefits costs and other costs.

Credit Quality Improves

Provision for loan losses witnessed a reversal of $602,000 compared with the provision of credit losses of $47,000 in the prior-year quarter. The reversal of credit losses mainly reflected changes in reserves on margin loans within the broker-dealer segment.

Non-performing assets as a percentage of total assets were 0.64%, down 27 bps. Also, non-performing loans were $82.1 million as of Sep 30, 2020, up significantly from the $35.5 million recorded in the comparable period of 2019.

Balance Sheet: A Mixed Bag

As of Sep 30, 2020, Hilltop Holdings’ cash and due from banks was $1.3 billion, down 22.3% from the prior quarter. Total shareholders’ equity was $2.4 billion, up 6.4% sequentially.

As of Sep 30, 2020, net loans held for investment inched up 1.3% sequentially to $7.8 billion. However, total deposits were $11.3 billion, down 3.3% from the prior quarter.

Profitability & Capital Ratio Improve

Return on average assets at the end of the reported quarter was 3.71%, up from the prior-year quarter’s 2.26%. Also, return on average equity was 25.94%, up from the year-earlier quarter’s 15.55%.

Common equity tier 1 capital ratio was 19.85% as of Sep 30, 2020, up from 16.15% in the corresponding period of 2019. Moreover, total capital ratio was 23.22%, reflecting a rise from the prior-year quarter’s 16.95%.

2020 Outlook

Management expects average loans held for investment (HFI) to grow, mainly driven by Payment Protection Program (PPP) loans. Construction & industrial (C&I) and commercial real estate (CRE) loan demand expected to remain soft into 2021.

Customer deposit inflows are likely to continue, though at a slower pace than third-quarter 2020. Further, brokered deposits are expected to decline $300-$500 million by year-end.

Purchase account accretion (PAA) is expected to decline 25-35% on a year-over-year basis. The company expects revenues from purchase loan accretion to decline as the previously purchased portfolio continue to run off. Further, the same will average $2-$4 million per quarter over the coming quarters.

Further, NII is expected to decline due to fall in interest rates, weak loan demand and a relatively flat yield curve.

Mortgage volumes are anticipated to stabilize gradually in the remainder of 2020. The gain on sale margins in mortgage business will remain elevated during the fourth quarter and likely be within the 430-450 bps range through year end.

In terms of non-interest expenses, non-variable expenses are expected to be stable, while variable expenses will depend on the revenues generated from fee businesses.

The company expects a further increase in credit reserves given the changes in the economic backdrop.

Effective tax rate (GAAP basis) is anticipated to be 22-24%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 85.07% due to these changes.

VGM Scores

At this time, Hilltop Holdings has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Hilltop Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.