We are downgrading our recommendation on Hilltop to Neutral due to
lower estimate revisions after a dismal third-quarter earnings that
lagged both the Zacks Consensus Estimate and the year-ago quarter
figures. Low non-interest income and high expenses from FNB deal
led the downside. Nevertheless, high interest income drove the top
line, while interest expenses and loan loss provisions declined,
although ROE and cash flow deteriorated. Healthy balance sheet,
free cash flow, capital ratios and investment portfolio are notable
and support book value. The company has maintained stability
despite a series of acquisitions. While execution risks from recent
acquisitions prevail, we believe prudent capital management should
mitigate market risks to strengthen operating and competitive
Founded in 1998 and headquartered in Dallas, Texas, Hilltop
Holdings Inc., formerly Affordable Residential Communities, Inc.
(ARC), engages in the acquisition, renovation, repositioning and
operation of all-age manufactured home communities, retail sale,
financing of manufactured homes, rental of manufactured homes as
well as other related businesses.
Previously founded as ARV IV REIT Inc., the company changed its
name to ARC and finally to Hilltop Holdings. In Jul 2004, Hilltop
completed its initial public offering (IPO).
Hilltop also operates as a property and casualty insurance
company in the U.S., through its subsidiary, National Lloyds Corp.
(NLC). On Jan 31, 2007, ARC acquired NLC, a privately-held property
and casualty insurance holding company, for about $122 million. NLC
is a Delaware corporation that specializes in providing fire and
homeowners' insurance to low-value dwellings and manufactured homes
primarily in Texas and other areas of the south, southeastern, and
southwestern U.S. NLC operates through its wholly owned
subsidiaries, National Lloyds Insurance Co. (NLIC) and American
Summit Insurance Co. (ASIC).
As of Jul 31, 2007, ARC sold off all these businesses except
NLC. After the sale, NLC transferred all its rights to ARC, which
then changed its name to Hilltop Holdings Inc. and moved its
headquarters to Dallas, Texas. Hilltop's insurance operations are
headquartered in Waco, Texas. Hilltop operates largely in Texas
apart from Arizona, Tennessee, Oklahoma, Georgia and Louisiana,
among other states.
Additionally, in Nov 2012, Hilltop acquired the U.S.-based
financial services company PlainsCapital Corp. for $813.5 million.
PlainsCapital operated in about 330 locations across 42 states at
the time of acquisition. Following the acquisition, Hilltop became
a financial bank holding company.
Currently, Hilltop's total revenue primarily comprises net
premiums earned from its property and casualty subsidiary (NLC) as
well as net interest and non-interest income from the PlainsCapital
banking and financial operations. As of Dec 31, 2013, the company
had 4,550 full-time equivalent employees across the U.S., including
the PlainsCapital employees.
Post the acquisition of PlainsCapital, Hilltop operates through
four segments, which are incorporated under net interest income and
non-interest income. These segments include Banking, Mortgage
Origination, Insurance and Financial Advisory.
On Sep 13, 2013, Hilltop's PlainsCapital acquired Texas-based
First National Bank (FNB) from the Federal Deposit Insurance
Corporation (FDIC) for about $2.2 billion. This included $1.1
billion in covered loans, $286.2 million in securities, $121.0
million in covered other real estate owned and $45.9 million in
non-covered loans. The bank also assumed $2.2 billion in
liabilities, consisting primarily deposits.
With the inclusion of FNB's 51 branches, the deal increased
PlainsCapital Bank's retail network to 84 branches. The FDIC and
PlainsCapital entered into the deal through a loss-share agreement
on $1.8 billion of First National's assets. This means the FDIC
will share potential losses on those assets.
Hilltop Holdings Inc. (HTH): Read the Full Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
HILLTOP HLDGS (HTH): Free Stock Analysis Report
To read this article on Zacks.com click here.