We downgraded our recommendation on Hilltop to Neutral based on
execution risks related to the recent acquisitions. These risks are
also expected to temper growth in the upcoming quarters, as the
addition of PlainsCapital has completed its first anniversary.
Nonetheless, the acquisitions have inflated assets, investment
portfolio and cash flow paving the way for efficient capital
deployment, while mitigating risks from low interest rates and
strengthening operating leverage and competitive efficiencies.
Hilltop's third-quarter earnings outpaced both the Zacks Consensus
Estimate and the year-ago loss. Premiums, interest and non-interest
income outperformed, driven by improvement across segments.
However, higher underwriting, interest and operating expenses were
partial offsets, although combined ratio improved. Moreover,
capital ratios remain sturdy. Hilltop should continue to tread
ahead with its strategic approach in order to capitalize on the
opportunities that the markets provide on stabilization.
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 Dec 31, 2012, NLIC operated in
14 states and ASIC operated in 13 states.
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
along with Arizona, Tennessee, Oklahoma, Georgia and Louisiana,
among other states.
Additionally, in Nov 2012, Hilltop acquired U.S.-based financial
services company PlainsCapital Corp. for $813.5 million. As of Sep
30, 2012, PlainsCapital had assets worth $6.4 billion and operated
in 330 locations across 42 states through 3,700 employees.
Following this acquisition, Hilltop became a financial bank holding
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, 2012, the company
had 3,950 full-time equivalent employees across the U.S., including
employees from the PlainsCapital acquisition.
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 of 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.
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