Hilltop Holdings Inc. HTH shares touched a new 52-week low of $27.85 during Friday’s trading session. Over the past year, the stock has declined 18.7%, underperforming the industry, Zacks Finance sector and S&P 500 index. Also, the HTH stock has fared worse than its peers — Commerce Bancshares, Inc. CBSH and Hancock Whitney, Corp. HWC.

One-Year Price Performance

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Can HTH demonstrate adequate resilience to reverse the ongoing trend, or is the stock poised for a further decline? Let us try to find out.

Headwinds for Hilltop Holdings’ Stock

Excessive Reliance on Fee-Based Revenues: Hilltop Holdings’ increased reliance on fee-based revenues exposes it to concentration risk. The company’s total non-interest income, which accounts for almost 65% of its total revenues, grew just 4.6% on a year-over-year basis in the first nine months of 2024.

Deteriorating Asset Quality: Hilltop Holdings’ weak asset quality is a concern. Though the company’s provisions for credit losses declined during the first three quarters of 2024, the metric rose significantly in 2023 and 2022. Further, the company’s net charge-offs to average total loans held for investment grew nine basis points (bps) to 0.12% on a year-over-year basis. Also, non-accrual loans to total loans jumped 68 bps to 1.02% over the same time frame.

Given the challenging macroeconomic outlook and anticipated increase in delinquencies, the company’s asset quality will likely continue to deteriorate in the near term.

Allowance for Credit Losses Quarterly Trend

Image Source: Hilltop Holdings Inc.

Subdued Mortgage Origination Segment Performance: The weak performance of Hilltop Holdings’ Mortgage Origination segment remains a challenge. Mortgage volumes declined 44.2% in 2022 and 34.9% in 2023 with the downtrend persisting during the first nine months of 2024.

Mortgage Origination Volume Quarterly Trend

Image Source: Hilltop Holdings Inc.

PrimeLending, a wholly owned subsidiary of Hilltop Holdings and a national residential mortgage originator, has taken numerous initiatives to tackle lower loan volumes and pressure on profitability. These include a reduction in headcount, consolidation of unprofitable branches and adjustment of target fixed costs.

With mortgage rates creeping back toward 7% and likely to remain elevated in the near term, mortgage origination volumes are likely to remain subdued. This will exert pressure on the segment's performance.

The company expects overall 2024 mortgage origination income to remain relatively stable, with volume to be in the range of $8-$9 billion.

What Supports Hilltop Holdings Stock?

The above-mentioned concerns are likely to hold back Hilltop Holdings and lead to more bearish investor sentiments. Nonetheless, here are some of the factors that will likely support the company’s financials:

Relatively Higher Rates to Aid Net Interest Income: Hilltop Holdings has been focusing on improving its net interest income (NII). The metric reflected a compound annual growth rate (CAGR) of 1.5% in the five years ended in 2023. This was primarily driven by strategic buyouts, decent loan demand and higher interest rates.

Likewise, the company’s net interest margin (NIM) increased to 3.09% in 2023 from 2.88% in 2022. Though NII and NIM declined during the first three quarters of 2024 due to high funding costs, both metrics are likely to stabilize gradually as the Fed continues to lower interest rates and the lending scenario improves.

NIM Trend

Image Source: Hilltop Holdings Inc.

Encouraging Capital Distributions: As of Sept. 30, 2024, HTH’s total debt (comprising short-term borrowings and other liabilities) was $1.31 billion, and cash and due from banks stood at $1.96 billion.

Given a solid balance sheet position, the company’s capital distribution activities remain encouraging. HTH has been hiking its dividends regularly since 2016, with the last one announced in January 2024.

The company has hiked its dividend five times in the last five years with an annualized dividend growth of 16.2%. This demonstrates the company’s financial resilience.

Dividend Yield

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Similarly, CBSH has increased its dividends seven times over the past five years, while HWC has hiked only twice in the same time frame.
 
HTH has a share repurchase plan in place, which is set to expire this month. As of Sept. 30, 2024, roughly $55.2 million worth of authorization remained available.

Hence, a solid liquidity profile and robust balance sheet enable the company to address its near-term debt obligations and sustain its capital distributions.

Prudent Expense Management: Hilltop Holdings has been managing its expenses judiciously. The company’s non-interest expenses reflected a negative CAGR of 10.9% over the three years ended in 2023. The downtrend persisted in the first three quarters of 2024.

Total Expenses Trend

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This fall in expenses is on account of the company’s measures to mitigate expenses in less profitable businesses like Prime Lending. Though continued investments in franchises and inflationary pressures will weigh on the company’s total expenses, such efforts will continue to slow down the pace of expense increase.

The company expects variable expenses to decline 1-3% in 2024.

Bullish Analyst Sentiments: Over the past month, the Zacks Consensus Estimate for 2024 earnings of $1.48 has been unchanged, while 2025 earnings of $1.55 per share moved marginally upward.

Estimate Revision Trend

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While the projected figures imply a decline of 12.4% in 2024, the same is expected to rebound and grow 4.2% in 2025.

Final Thoughts on HTH Stock

Prudent expense management and a solid balance sheet are likely to support Hilltop Holdings’ financials. Relatively higher rates are expected to aid NII. However, higher funding costs will likely strain margin expansion. Weak asset quality, subdued mortgage origination volumes and high reliance on fee-based revenues remain major near-term headwinds.

Thus, the HTH stock remains a cautious bet for investors at the moment. Those who own the stock can hold it for now. HTH currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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