Hilltop Holdings (NYSE:HTH) Inc. reported a net income of $37 million, or $0.57 per diluted share, for Q3 2023, demonstrating resilience in a challenging market environment. Despite rising interest rates and market pressures, the firm maintained profitability and grew its book value. The company expects future volatility in its allowance for credit losses, and a continued rise in interest-bearing deposit costs.

With a market cap of $1770M USD and a P/E Ratio (Adjusted) LTM2023.Q3 of 16.31,  Hilltop’s financial stability is evident. The company also showed a promising revenue of $1178.08M USD in LTM2023.Q3, even though the revenue growth showed a slight decline of -15.93%.

Key takeaways from the call include:

• Hilltop’s bank division registered stable average loans, a decrease in non-performing assets, and a net recovery.
• The company faced challenges in the residential mortgage industry due to higher mortgage rates and low housing supply.
• Hilltop Securities reported a pre-tax income of $22 million.
• The firm increased its tangible book value per share and maintained strong capital levels.
• Net interest income decreased due to higher yields on deposits, and the net interest margin declined slightly.
• Hilltop reported approximately $7.3 billion of available liquidity as of September 30, 2024.
• Non-interest expenses decreased by $29 million from the previous year.
• The firm is actively evaluating capital deployment through mergers and acquisitions (M&A).

Hilltop has high earnings quality, with free cash flow exceeding net income. They also note that the company has raised its dividend for 8 consecutive years, indicating a strong financial position.

Despite a challenging environment, Hilltop Holdings maintained solid profitability. The bank division reported stable average loans and a decline in non-performing assets. However, the residential mortgage industry posed challenges due to higher mortgage rates and a low housing supply. Hilltop Securities performed well, reporting a pre-tax income of $22 million.

The company maintained robust capital levels and increased its tangible book value per share. Despite a resilient credit quality, Hilltop warned that its allowance for credit losses could be volatile in the future. The firm also reported a decrease in net interest income due to higher yields on deposits and a slight decline in the net interest margin.

As of September 30, 2024, Hilltop reported approximately $7.3 billion of available liquidity and does not plan to leverage the Federal Reserve’s discount window. The company expects interest-bearing deposit costs to continue rising. Total non-interest income for the quarter was $197 million, primarily due to challenges in the mortgage banking sector. Non-interest expenses decreased by $29 million from the prior year, supported by decreases in variable compensation and fixed expenses.

During the earnings call, the company highlighted its focus on mergers and acquisitions for high returns and stated that it is evaluating potential opportunities. Hilltop expects its capital to continue increasing. The company also discussed trends in non-interest-bearing deposits, anticipating a decline as customers move their deposits into interest-bearing products. Hilltop expects net interest income (NII) to trend modestly lower due to a smaller balance sheet and higher deposit costs. The net interest margin (NIM) is also expected to trend lower, towards 2.95%, with further deterioration depending on rate movements by the Federal Reserve.

Jeremy Ford (NYSE:F), a representative from the company, reiterated these expectations during the call. He noted that the provision for credit losses can be volatile based on economic scenarios, but the firm hasn’t seen any significant deterioration in its portfolio. The call concluded with no further questions.