Hilltop Holdings Inc.’s HTH third-quarter 2023 earnings of 57 cents per share beat the Zacks Consensus Estimate of 43 cents by a considerable margin. The bottom line also grew 42.5% from the prior-year quarter.

Results benefited from lower expenses and reversal in provision for credit losses. Also, the company reported solid profitability and capital ratios during the quarter. However, continued weakness in the mortgage business hurt HTH’s non-interest income. Further, an increase in deposit costs and lower loan and deposit balance led to a decline in net interest income (NII) despite higher interest rates.

Net income attributable to Hilltop Holdings was $37 million, up 15.5% year over year.

Revenues & Expenses Decline

Net revenues were $312.5 million, declining 5.4% year over year. The top line, however, beat the Zacks Consensus Estimate of $309.63 million.

NII declined 6.3% to $115.7 million. Our estimate was $116.7 million.

Net interest margin (NIM) (taxable-equivalent basis) was 3.04%, which declined 16 basis points (bps). We had expected NIM to be 2.97%.

Non-interest income was $196.8 million, falling 4.9%. This was mainly due to lower net gains from the sale of loans and other mortgage production income and securities commissions and fees. We had anticipated the metric to be $187.3 million.

Non-interest expenses declined 9.9% to $260 million. The fall was due to a decrease in employees' compensation and benefits costs and net occupancy and equipment costs. The decline reflected efforts undertaken by the company at PrimeLending to counter reduced mortgage loan volumes and pressure on profitability. We projected total non-interest expense of $263.2 million.

As of Sep 30, 2023, net loans held for investment were $8.1 billion, down 1.8% from the prior quarter. Total deposits were $11.1 billion, down marginally. Our estimates for net loans held for investment and total deposits were $8.3 billion and $11.3 billion, respectively.

Credit Quality Improves

In the reported quarter, Hilltop Holdings recorded a provision benefit of $0.04 million compared with $2.3 million in the prior-year quarter. This reflected improvements to the U.S. economic outlook and a fall in specific reserves within the company’s Broker Dealer segment, partly offset by a rise in specific reserves within the Banking segment.

As of Sep 30, 2023, non-performing assets as a percentage of total assets were 0.22%, on par with the year-ago quarter.

Profitability & Capital Ratios Improve

Return on average assets at the end of the reported quarter was 0.94%, up from the prior-year quarter’s 0.79%. The return on average equity was 7.11%, declining from 6.26%.

Common equity tier 1 capital ratio was 18.60% as of Sep 30, 2023, up from 17.45% in the corresponding period of 2022. The total capital ratio was 21.54%, reflecting a rise from the year-ago period’s 20.07%.