Texas lender Hilltop Holdings (HTH 1.26%) was able to offset continued weakness in the mortgage market with strong gains elsewhere, leading to an earnings beat for the first quarter, it reported Thursday. Investors are buying in, sending shares of Hilltop up about 5% as of noon ET Friday.
Finding ways to offset mortgage weakness
Hilltop earned $0.42 per share in the quarter, beating Wall Street's $0.25-per-share consensus estimate, despite net interest income that was down $18 million year over year to $103.6 million. The company was able to offset that decline via a reversal of credit losses thanks to an improving local economy, as well as an increase in broker-dealer net revenue.
The company continues to see declines in its mortgage production unit but was able to counter that by selling mortgage loans at a gain.
CEO Jeremy B. Ford called the quarter "a continuation in market trends that were experienced through 2023," but said the bank is holding up well.
"The elevated interest rate environment continues to impact our net interest margin primarily through increased borrowing costs," Ford said. "Additionally, a lack of housing inventory and pressured home buying affordability limited mortgage origination volumes."
Is Hilltop a buy after its strong earnings report?
The credit loss improvement speaks well to the lending environment and Hilltop's ability to make good loans in tough conditions. But the company is going to find it hard to surge ahead until the mortgage market rebounds.
Hilltop shares are poised to go higher over time, but developments well beyond the bank's control including the Federal Reserve's rate movement, the subsequent impact on Treasury yields and mortgage rates, and tight labor markets cloud the near-term outlook.
For investors seeking bank stocks with upside potential Hilltop is worthy of a place on the watch list, but until macroeconomic conditions turn, patience will be required.
